Obama's Junk Economics (Michael Hudson)

by Dollars and Sense

From Counterpunch:

Obama's Junk Economics

Democrats Say "Bye" to Populist Option

In a dress rehearsal for this November’s mid-term election, Democrats and Republicans vied last week for who could denounce the banks and blame the other party the most for the giveaways to Wall Street that have swollen the public debt since September 2008, pushing the federal budget into deficit and the economy into a slump.

The Republicans are winning the populist war. On the weekend before his State of the Union address on Wednesday, Obama strong-armed Democratic senators to re-appoint Ben Bernanke as Federal Reserve Chairman. His Wednesday speech did not mention this act (happily applauded by Wall Street). The President sought to defuse voter opposition by acknowledging that nobody likes the banks. But he claimed that unemployment would be much higher if they hadn’t been bailed out. So the giveaway of public funds was all for the workers. The $13 trillion that has created a new power elite was just an incidental byproduct. Unpleasant, perhaps, as American democracy slips into oligarchy. But the least bad option. People might not like it, but Main Street simply cannot prosper without creating hundreds of Wall Street billionaires—without enabling them to increase their bonuses and capital gains as bank stock prices quadruple. It’s all to get credit flowing again (at 30 percent for credit card users, to be sure.)

So the rest of us must wait for wealth to trickle down. The cover story is that, like it or not, this is how the world works. At least this is the argument of the lobbyists who are drafting and censoring laws and signing off on just who is acceptable to run the Federal Reserve, Treasury and other public-subsidy agencies. The working assumption is that the economy cannot recover without enriching Wall Street.

In fact what the economy needs is to recover from the Bush-Obama supposed cure, i.e., from the mushrooming debt overhead. It needs to recover from the enrichment of Wall Street. It doesn’t need more credit, but a write-down for the unpayably high debts that the banks have imposed on American families, businesses, states and localities, real estate, and the federal government itself.

Instead of helping debtors, Obama has moved to heal the creditors, at public expense. If debtors cannot pay, the Treasury and Fed will take their IOUs and bad casino gambles onto the public sector’s balance sheet. The financial winners must come first—and it seems second and third, too. The rationale is that unless the government gives the large financial institutions what they want and saves them from taking a loss, their “incentive” to protect the economy from devastation will be gone.

Read the rest of the article.

Labels: bailout, Barack Obama, Counterpunch, debtors, Michael Hudson, populism

 

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2/11/2010 02:57:00 PM 0 comments

 

Krugman vs. Hudson on Samuelson

by Dollars and Sense

I was alerted by this post on Naked Capitalism to a back-and-forth between Paul Krugman and Michael Hudson on Paul Samuelson.

It started when, on Dec. 14th, the day after Samuelson died, Counterpunch re-published a paper by Michael Hudson from back in 1970, shortly after Samuelson was awarded the recently-established Nobel Prize in Economics. Here's a tidbit:

This is only the second year in which the Economics prize has been awarded, and the first time it has been granted to a single individual—Paul Samuelson—described in the words of a jubilant New York Times editorial as "the world's greatest pure economic theorist." And yet the body of doctrine that Samuelson espouses is one of the major reasons why economics students enrolled in the nation's colleges have been declining in number. For they are, I am glad to say, appalled at the irrelevant nature of the discipline as it is now taught, impatient with its inability to describe the problems which plague the world in which they live, and increasingly resentful of its explaining away the most apparent problems which first attracted them to the subject.

The trouble with the Nobel Award is not so much its choice of man (although I shall have more to say later as to the implications of the choice of Samuelson), but its designation of economics as a scientific field worthy of receiving a Nobel prize at all. In the prize committee's words, Mr. Samuelson received the award for the "scientific work through which he has developed static and dynamic economic theory and actively contributed to raising the level of analysis in economic science. . . ."

What is the nature of this science? Can it be "scientific" to promulgate theories that do not describe economic reality as it unfolds in its historical context, and which lead to economic imbalance when applied? Is economics really an applied science at all? Of course it is implemented in practice, but with a noteworthy lack of success in recent years on the part of all the major economic schools, from the post-Keynesians to the monetarists.

In Mr. Samuelson's case, for example, the trade policy that follows from his theoretical doctrines is laissez faire. That this doctrine has been adopted by most of the western world is obvious. That it has benefited the developed nations is also apparent. However, its usefulness to less developed countries is doubtful, for underlying it is a permanent justification of the status quo: let things alone and everything will (tend to) come to "equilibrium." Unfortunately, this concept of equilibrium is probably the most perverse idea plaguing economics today, and it is just this concept that Mr. Samuelson has done so much to popularize. For it is all too often overlooked that when someone falls fiat on his face he is "in equilibrium" just as much as when he is standing upright. Poverty as well as wealth represents an equilibrium position. Everything that exists represents, however fleetingly, some equilibrium—that is, some balance or product—of forces.

Krugman responded to Hudson on his NYT blog. (As one commenter ("attempter") on Naked Capitalism pointed out, Krugman doesn't even mention Hudson by name: "Krugman couldn't even bring himself to write Hudson's name, but just linked to the anonymous post. (Of course K is always very respectful of anyone properly ensconsed in the Establishment, even where he disagrees with them.) Quite the contrast with his protests over how he and others who were correct on Iraq remain marginalized on that subject.") Here is all of Krugman's post:

A number of people are linking to this reprinted critique of the work of the late Paul Samuelson. I could point out that the critique thoroughly misunderstands what Samuelson was saying about international trade, factor prices, and all that. But there is, I think, an interesting point to be made if we start from this complaint:

Can it be "scientific" to promulgate theories that do not describe economic reality as it unfolds in its historical context, and which lead to economic imbalance when applied?

Actually, there was a time when many people thought that institutional economics, which was very much focused on historical context, the complexity of human behavior, and all that, would be the wave of the future. So why didn't that happen? Why did the model-builders, led by Samuelson, take over instead?

The answer, in a word, was the Great Depression.

Faced with the Depression, institutional economics turned out to have very little to offer, except to say that it was a complex phenomenon with deep historical roots, and surely there was no easy answer. Meanwhile, model-oriented economists turned quickly to Keynes—who was very much a builder of little models. And what they said was, "This is a failure of effective demand. You can cure it by pushing this button." The fiscal expansion of World War II, although not intended as a Keynesian policy, proved them right.

So Samuelson-type economics didn't win because of its power to cloud men's minds. It won because in the greatest economic crisis in history, it had something useful to say.

In the decades that followed, economists themselves forgot this history; today's equation-mongers, for the most part, have no idea how much they owe to the Keynesian revolution. But in terms of shaping economics, it was the Depression that did it.

L. Randall Wray of the University of Missouri at Kansas City (where Hudson teaches, along with lots of other great heterodox economists, responded on behalf of Hudson at the UMKC econ blog. Wray says that Krugman's claim that "Samuelson-type economics" won the day because it had something useful to say in response to the Depression is "bizarre, to say the least," and he gives six reasons for thinking so. Here are the first four:

First, Roosevelt's New Deal was in place before Keynes published his General Theory, and it was mostly formulated by the American institutional economists that Krugman claims to have been clueless. (There certainly were clueless economists—those following the neoclassical approach, traced to English "political economy".)

Second, it was Alvin Hansen, not Paul Samuelson, who brought Keynesian ideas to America. And Hansen retained the more radical ideas (such as the tendency to stagnation) that Samuelson dropped. Further, Hansen was—surprise, surprise—working within the institutionalist tradition (as documented by in a book by Perry Mehrling).

Third, many other institutionalists also adopted Keynesian ideas in their work—before Samuelson's simplistic mathematization swamped the discipline. For example, Dudley Dillard—a well-known institutionalist—wrote the first accessible interpretation of Keynes in 1948; Kenneth Boulding's 1950 Reconstruction of Economics served as the basis for four editions of his Principles book—on which a generation of American economists was trained (again, before Samuelson's text took over). It is in almost every respect superior to Samuelson's text. I encourage Professor Krugman to take a look.

Fourth, Hyman Minsky (who first trained with institutionalists at the University of Chicago—before it became a bastion of monetarist thought) took Samuelson's overly simplistic multiplier-accelerator approach and extended it with institutional ceilings and floors. He quickly grew tired of the constraints placed on theory by Samuelsonian mathematics and moved on to develop his Financial Instability Hypothesis (which Krugman has admitted he finds interesting, even if he does not fully comprehend it). I ask you, how many analysts have turned to Samuelson's work to try to understand the current crisis—versus the number of times Minsky's work has been invoked?

Read the rest of the post.

And last but not least, here's Michael Hudson's response to Krugman, also at the UMKC econ blog.

Labels: Counterpunch, Great Depression, institutional economics, Keynesianism, L. Randall Wray, Michael Hudson, Paul Krugman, Paul Samuelson, UMKC

 

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12/22/2009 01:49:00 PM 0 comments

 

Obama's Neoliberal and Elitist Educational Policy

by Dollars and Sense

From Danny Weil, who's writing a book on elite-led educational reform, at Counterpunch. Not to disrespect the dead, but it must be remembered that No Child Left Behind was endorsed by the late Senator Kennedy...
Neoliberalism, Charter Schools and the Chicago ModelObama and Duncan's Education Policy:
Like Bush's, Only Worse
By DANNY WEIL

In his first major speech on education since his election and swearing in as President, a speech made to an unscheduled meeting of the Council of Chief State School officers, held on March 10, 2009 in Washington D.C., Barrack Obama repeated the claims heard from many quarters that the United States must drastically improve student achievement to regain lost international standing in the world. He called for tying teachers' pay to student performance (merit pay) and for expanding charter schools throughout the nation. In calling for merit pay for teachers, Obama argued:

"Too many supporters of my party have resisted the idea of rewarding excellence in teaching with extra pay, even though we know it can make a difference in the classroom."

The president of the 3.2 million-member National Education Association (NEA), Dennis Van Roekel, weakly insisted that Obama's call for teacher performance pay did not necessarily signify raises or bonuses would be tied to student test scores under No Child Left behind, as merit pay proponents have consistently called for. According to the NEA president, it could mean more pay for board-certified teachers or for those who work in high-poverty, hard-to-staff schools. However, much to the chagrin of the NEA president, administration officials later clarified the issue, saying that among other things, they most certainly do mean to tie higher teacher pay to student achievement on standardized tests. This clearly seems to signal that the No Child Left Behind standardized testing regime will continue unabated and the 'average yearly progress' will continue to serve as the metaphorical educational Dow Jones of 'measureable outcomes', not only for teachers and students, but as we discussed in previous chapters, eventually as benchmarks for the 'charter school providers' or EMOs themselves.

Read the rest of the article

Labels: Arne Duncan, Barack Obama, charter schools, Counterpunch, Danny Weil, education, NEA, no child left behind act

 

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8/27/2009 01:47:00 PM 0 comments