What happened to the liquidity trap?

Mark A Sadowski comments:

In November 2012 the CBO estimated that the maximum level employment effect would be a decrease of about 200,000 jobs, 640,000 jobs (80% 0f combined payroll and UI effect of 800,000 jobs lost) and 800,000 jobs for the high income tax increase, payroll tax increase, and sequester respectively: http://www.cbo.gov/sites/default/files/cbofiles/attachments/11-08-12-FiscalTightening.pdf

In other words, according to these estimates, the sequester should already have decreased employment by over 500,000 jobs relative to baseline, and the tax increases should decrease employment over 400,000 relative to baseline by the next employment report at the latest.

What happened to the liquidity trap?

Read more at Macro and Other Market Musings: Is the Fed's Able to Offset Austerity? Insights from the Employment Report.

Urban sprawl isn’t to blame: unsustainable cities are the product of growth fetish

By Brendan Gleeson, University of Melbourne

In a recent article on The Conversation Robert Nelson argues we are all morally culpable for unsustainable urban sprawl. He goes on to suggest we fix this by taking advantage of opportunities for higher density development in sparsely populated inner suburbs.

But his argument is based on a false opposition: mounting evidence shows that high density development in inner areas performs very poorly in terms of resource consumption and greenhouse emissions. The idea that outer suburbs are inherently less sustainable than inner ones doesn’t bear scrutiny.

The key question is not where we accommodate growth; it’s our slavish pursuit of growth itself.

Urban accumulation

The metro fringe is expected to accommodate 40% of our national population increase in the next 15 or so years. Australia has for some time been experiencing record population growth, cheered on by business lobbies, and rationalised by the expertise they buy. Not all of it is corporate conception, or undesirable: the fertility spike and commitment to a humane migration program are also contributors.

The urban sustainability crisis betrays not bad consumption patterns but the awesome success of accumulation. Our cities express the ceaseless economic expansion imperative and its politico-cultural expression, which Clive Hamilton has memorably described as the “growth fetish”.

We have sprawl in every possible physical form – from low density suburbia to the vertical sprawl produced by market driven compaction. It is a fallacy to describe the latter as sustainable.

The existing urban footprint simply cannot absorb the human increase. It is a physical, social and political impossibility. And the underlying imperative of accumulation will drive excessive urban expansion in its various forms.

Risky business

The physical form of cities and suburbs has little influence on overproduction and its social and ecological consequences.

We are, as Nelson correctly implies, in the tightening grip of a species crisis. As the German sociologist Ulrich Beck describes it, we live in a World at Risk – from climate warming, resource depletion, economic default, and social breakdown. The ecological crisis may be the gravest of these as it appears to be moving with wild speed and threatens to upend the planetary order entirely. But it cannot be divorced from the other calamities which all derive from a human modernity that, as Beck states, is devouring itself.

The looming human catastrophe is not a moral crisis or a consequence of ethical failure. It is the product of a political economy that has defined, if not always exclusively, the process of modernisation through the past five or so centuries. The long haul of capitalist accumulation has brought us to the abyss of species threat.

It is wrong to explain this historical process in moral terms. This merely distracts attention from the role of capitalism as a driver of growth. As the philosopher Slavoj Žižek put it recently, “The point of emphasising morality is to prevent the critique of capitalism”.

Capitalism is a force for ceaseless accumulation driven by valorisation (value creating value). It is hard-wired to expansion, and can never be reconceived or reformed as a “steady state” economic order. It expands or it dies.

And therein lays its marvellous, terrifying power. It is a human order set in epic contest with the natural order, scaling ever upwards the heights of risk. One day it will reach the precipice of possibility and a structural transformation will ensue. Humanity will survive this, as it has all other historical transformations, but we do not know what new social dispensation will be possible in its wake.

Weathering the storm

It is simply impossible to dramatically change the urban form in the timescales of looming climate and resource emergencies. Absent war or massive calamity, cities resist sudden change. We cannot design our way out of a crisis generated by the underlying political economy that has driven modernisation for centuries.

However, good planning and design are vital to the project of making our cities as safe and resilient as possible. Elsewhere I have urged us to reconceive cities as lifeboats that will carry an increasingly urbanised humanity through the storms that lie inevitably in our path.

It is only fair that we break from our long habit of malign neglect and cut the outer suburbs an appropriate share of national resources. The investment should be in a massive suburban overhaul to realise the latent environmental potential of the low density form. In quest for resilience, households should be assisted towards self-sufficiency in water, energy and food production.

Paul Mees’ important Australian book, Transport for Suburbia, shows decisively that good public transport is possible in the low density form. We must lament the intellectual and political idiocy that has convinced us that it cannot be made to work in the suburbs.

The outer suburbs simply aren’t the source of our mounting environmental problems. And neither is social delinquency a helpful way of thinking about what is a long run failing of the market economy. We have to prepare the lifeboats for what lies ahead.

Brendan Gleeson does not work for, consult to, own shares in or receive funding from any company or organisation that would benefit from this article, and has no relevant affiliations.

The Conversation

This article was originally published at The Conversation.
Read the original article.

Colin Twiggs:

I agree with Brendan Gleeson’s defense of suburbia, but what concerns me is the focus on sustainability in terms of energy usage and a critique of the economic system. No doubt these are important, but I would like to see more attention given to the health dangers of high-density living, both physical and psychological — from the impact on childhood obesity to feelings of isolation, increased aggression and pathological behavior in inner city environments. Biologists as far back as Konrad Lorenz (Civilized Man’s Eight Deadly Sins) have warned of the dangers of over-crowding and their impact on aggression levels.

Lorenz also warned of the ‘avalanche’ effect of positive feedback from technological development and how this could create an environment where humans struggle to cope. Prof. Gleeson I believe is trying to make a similar point when he refers to a ‘growth fetish’.

Capitalism is a force for ceaseless accumulation …… It is hard-wired to expansion, and can never be reconceived or reformed as a “steady state” economic order. It expands or it dies.

To lay the blame for this ceaseless expansion at the foot of Capitalism is I believe misguided. Capitalism covers the full spectrum from intense competition in cities like New York to peaceful co-existence in rural communities such as Pennsylvania or the Outer-Hebrides. And we find a similar spectrum in Communist or Socialist societies. The underlying cause of the malaise appears to be the impact of high-density living — no matter what economic system — and the consequent breakdown of the individual’s sense of community and belonging. A study (can anyone recall the name?) done in Australia several years ago found that Australians living in small to medium-sized towns (10,000 to 50,000) enjoyed greater psychological well-being than their city or rural counter-parts. These towns seem to offer balance between community (belonging) and the spectrum of opportunities only normally available to larger communities. More effort should be made to identify the underlying causes of that well-being and attempt to replicate the benefits in both rural and city environments. Economic and energy efficiency are important, but first and foremost we need to create cities that are healthy to live in — from both a physical and psychological aspect.

The insufferable conceit | MacroBusiness

Sell on News at Macrobusiness observes:

Columbia University economist Jeffrey Sachs recently commented that the financial system is plagued by large scale fraud. He blamed it on a docile president, a docile White House and docile regulators……..

Sachs is right in his observations, of course. But I am not sure he is right to imply that it is new. I think Greed and Wall Street have been bedfellows as long as Wall Street has existed.

Read more at The insufferable conceit | | MacroBusiness.

China: A Billion Strong but Short on Workers | WSJ.com

KATHY CHU at WSJ reports:

This year, service-related positions — such as those in retail, travel and leisure — for the first time will account for more of the country’s gross domestic product than industrial-sector jobs, J.P. Morgan Chase predicts.

Government figures show the service sector created 37 million new jobs in the past five years, compared with 29 million in the industrial sector, which includes manufacturing, construction and mining.

Read more at China: A Billion Strong but Short on Workers – WSJ.com.

Blame del Pont for the nightmarish rise in Argentine inflation | The Market Monetarist

Lars Christensen cites MercoPress on hyper-inflation in Argentina:

Because of inflation, people collect their salaries and rush to turn them into foreign currency”, added the money traders…

He observes:

The collapse of the peso should be no surprise to anybody who have studied Milton Friedman. Unfortunately Argentina’s central bank governor Mercedes Marcó del Pont hates Milton Friedman, but she loves printing money to finance public spending.

Read more at Blame del Pont for the nightmarish rise in Argentine inflation | The Market Monetarist.

How Bureaucrats and Politicians Conspire to Rip Off Taxpayers | International Liberty

Dan Mitchell discusses a new National Bureau of Economic Research working paper entitled “Shrouded Costs of Government: The Political Economy of State and Local Public Pensions.”

….The politicians give the bureaucrats excessive compensation. But they make it difficult for taxpayers to figure out how they’re getting robbed by concentrating a big share of the excess in harder-to-measure fringe benefits.

Another advantage of that approach, by the way, is that the bill for all the retiree benefits doesn’t come due until some point in the future, by which time the politicians who put taxpayers on the hook often have retired or moved on to some other position.

Generous benefits for government employees are a neat way for politicians to avoid accountability. They do not appear in the budget and are a hidden liability of the government. For a start we need to prevent politicians from creating unfunded future liabilities not just for government employee benefits, but for Social Security, Medicare and Medicaid funding. At present these are a hidden iceberg as they do not appear on the government balance sheet. It is too easy for politicians to kick the can down the road, failing to address any future funding shortfall. These unfunded future liabilities should be reflected on the balance sheet in order to improve accountability. If the actual liability is uncertain, then actuarial estimates can be used — in much the same way as used by insurance companies.

Read more at How Bureaucrats and Politicians Conspire to Rip Off Taxpayers | International Liberty.

Joseph Stiglitz: We have to shift our focus from money to credit | The IMF Blog

Joseph Stiglitz writes:

This might seem obvious. But a focus on the provision of credit has neither been at the center of policy discourse nor of the standard macro-models. We have to shift our focus from money to credit. In any balance sheet, the two sides are usually going to be very highly correlated. But that is not always the case, particularly in the context of large economic perturbations. In these, we ought to be focusing on credit.

This approach should be obvious to bankers who stand astride the two sides of their balance sheet: loan assets (credit) and deposit liabilities (money). Deposit liabilities may at times grow faster than loan assets but not vice versa.

Read more at The Lessons of the North Atlantic Crisis for Economic Theory and Policy | iMFdirect – The IMF Blog.

In Brown-Vitter Bill, a Banking Overhaul With Possible Teeth | NYTimes.com

Jesse Eisinger from ProPublica skewers big banks’ objections to increasing capital buffers as proposed by the bipartisan Brown-Vitter bill:

Goldman Sachs and S.& P. estimate the big banks might be forced to raise $1 trillion or more. That’s a lot, so much that the leviathans’ agents cry out that they couldn’t sell that much stock. But they don’t have to raise it all at once. And they can retain their earnings and stop paying dividends in addition to selling shares.

In putting that argument forward, they don’t realize they make Senator Brown’s and Senator Vitter’s case for them. If investors are so terrified of the big banks that they won’t buy their stock, that’s a terrific problem. Most of the big banks trade below their net worth, an indication that investors don’t trust them. Brown-Vitter might actually help banks by restoring that trust.

Read more at In Brown-Vitter Bill, a Banking Overhaul With Possible Teeth | Deal Book | NYTimes.com.