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Austerity: the Political Struggle over Who Controls the Economy’s Liquidity

Austerity: the Political Struggle over Who Controls the Economy’s Liquidity | Real Economy & Geopolitics |
By Michael Hoexter The austerity campaign, a favorite for the last four years of politicians and financial tycoons, remains a seemingly self-contradictory and baffling phenomenon for those who know that it goes against at least 80 years of economic...


"I believe austerity can be best understood as a titanic political-economic struggle over who controls macroeconomic liquidity as well as a struggle over the future of the private banking industry.  In this struggle any number of ruses and confusions are used to hide the true nature of what is at stake from the public, which otherwise would run the advocates of austerity out of town if not sue them within an inch of their lives."


Two Ways to Adjust Macroeconomic Liquidity


"There are two great controls that adjust the liquidity of the modern economy.

One method to adjust the economy’s overall macroeconomic liquidity is the operations of the central bank in setting interest rates and supporting banks in making credit available to consumers, local governments, other financial institutions, and businesses.  This is called, somewhat misleadingly, “monetary policy” which encompasses interest rate policy and inflation targeting by the central bank; it perhaps should be called “private lending policy” or “private bank policy”.  If the banks do not see profitable opportunities to lend money, what emerges is the so-called “liquidity trap” observed first by Keynes, which one encounters when the economy is in a debt-deflation, when low interest rates do not promote business activity due to many potential borrowers with too much debt and reduced incomes."


"The other, more complex method to adjust macroeconomic liquidity is fiscal policy, which is as much a monetary policy as is the central bank management of the private lending system.  Fiscal policy as monetary policy encompasses the spending and taxation policies of the national government, in the case of the US, the US Federal Government.  The monetary effects of fiscal policy are often a byproduct of the government fulfilling its mission to fulfill the public purpose however that may be defined by the political process.  The government may design its fiscal policy more or less with that policy’s monetary effects in mind depending in part on the orientation of the government as well as the state of the economy at a particular point in time.  

Despite the attention given to strictly monetary policy by economists and economic policy makers, it is fiscal policy that has the greatest long-run effect on the growth of the economy in the middle and longer term.  As has been discovered by Modern Money Theorists, the cumulative deficit spending of government, the net injection of currency into the economy by government, enables overall private sector growth and savings in monetary terms, especially in economies with a current accounts (trade) deficit."


"By contrast, the private lending cycle has a net subtractive effect on monetary growth, the liquidity and potential liquidity, of the economy averaged out over the business cycle.  The benefit of private lending into the real economy is that real assets like housing and factories are created, many of which are quite useful or desirable to individual or business participants in markets.  Loans must however be repaid with interest, so the net wealth of the financial sector from interest payments or fees actually subtracts from the liquidity of the real economy.   In order for interest to be paid the money for interest payments in net across the entire economy must be injected into the real economy from government spending in excess of taxation. The private banking sector cannot, in accounting terms, afford to give away its loan principle (even though this is created out of thin air) because it would otherwise show a loss on its balance sheet.  A monetarily sovereign government’s deficit spending remains the net contribution of government to monetary growth."


Via Austerity, the Liquidity Merchants Attempt to Control Their “Competition”


"After the global financial crisis of 2007-2008, the banks and financial intermediaries who were the proximal causes of that crisis were able to avoid a restructuring of the world’s financial systems similar to what occurred after the last Great Crash of 1929.   These private financial institutions are the pro-cyclical liquidity merchants whose lending can accelerate upturns and exacerbate downturns in the business cycle via the search for profitable ways to lend money and efforts to recover loan principle plus interest.  Benefiting from bank-friendly ideology in the halls of government and some quick maneuvering, the large banks were bailed out and only a small minority of governments (Iceland stands out) attempted a complete overhaul of the overgrown financial system.  Huge mountains of private debt remained and weighed down ordinary people, leading to anemic effective demand.

Rather than a revival of pro-Keynesian sentiment in the capitals of the world, agents of the financial industry along with habitual anti-Keynesians on the Right were quick to reactivate prejudices against government intervention in the economy, even as many of them had just been financially rescued by such intervention.   Within the dominant neoliberal philosophy, buttressed by an “Austrian”-influenced neoclassical economics that has been politically fashionable for three decades, government intervention in the economy had been viewed as a malaise or a sin which must be atoned.  The financial industry and its cheerleaders in the press jumped upon flaws in the undoubtedly flawed bailout and stimulus packages enacted by government to spur on a “Tea Party” movement against government as a manager and rescuer of the economy.  The drive towards austerity contradicted empirical evidence about the role of government after a financial crisis but this did not matter to the ideologically-driven campaign to blame government intervention and throttle government as a force in the economy. Within the prevailing neoliberal paradigm, debate was shoehorned into a “whether or not government” rather than a “how to best use the instrument of government” political debate."

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Cuenca del Plata - Gran Chaco

Cuenca del Plata - Gran Chaco | Real Economy & Geopolitics |
El grupo de trabajo Cuenca del Plata – Gran Chaco, busca generar una complementariedad entre potencialidades institucionales y emprendimientos en marcha en la región para fortalecer sinergias, desarrollar proyectos replicables y...
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Austerity: The History of a Dangerous Idea: Mark Blyth: Kindle Store

Austerity: The History of a Dangerous Idea: Mark Blyth: Kindle Store

"Conservatives today in both Europe and the United States have succeeded in casting government spending as reckless wastefulness that has made the economy worse. In contrast, they have advanced a policy of draconian budget cuts--austerity--to solve the financial crisis. We are told that we have all lived beyond our means and now need to tighten our belts. This view conveniently forgets where all that debt came from. Not from an orgy of government spending, but as the direct result of bailing out, recapitalizing, and adding liquidity to the broken banking system. Through these actions private debt was rechristened as government debt while those responsible for generating it walked away scot free, placing the blame on the state, and the burden on the taxpayer. "

"That burden now takes the form of a global turn to austerity, the policy of reducing domestic wages and prices to restore competitiveness and balance the budget. The problem, according to political economist Mark Blyth, is that austerity is a very dangerous idea. First of all, it doesn't work. As the past four years and countless historical examples from the last 100 years show, while it makes sense for any one state to try and cut its way to growth, it simply cannot work when all states try it simultaneously: all we do is shrink the economy. In the worst case, austerity policies worsened the Great Depression and created the conditions for seizures of power by the forces responsible for the Second World War: the Nazis and the Japanese military establishment. As Blyth amply demonstrates, the arguments for austerity are tenuous and the evidence thin. Rather than expanding growth and opportunity, the repeated revival of this dead economic idea has almost always led to low growth along with increases in wealth and income inequality. Austerity demolishes the conventional wisdom, marshaling an army of facts to demand that we recognize austerity for what it is, and what it costs us."

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The Bankers' New Clothes: Anat Admati, Martin Hellwig: Kindle Store

The Bankers' New Clothes: Anat Admati, Martin Hellwig: Kindle Store

"What is wrong with today's banking system? The past few years have shown that risks in banking can impose significant costs on the economy. Many claim, however, that a safer banking system would require sacrificing lending and economic growth. The Bankers' New Clothes examines this claim and the narratives used by bankers, politicians, and regulators to rationalize the lack of reform, exposing them as invalid."

"Admati and Hellwig argue we can have a safer and healthier banking system without sacrificing any of the benefits of the system, and at essentially no cost to society. They show that banks are as fragile as they are not because they must be, but because they want to be--and they get away with it. Whereas this situation benefits bankers, it distorts the economy and exposes the public to unnecessary risks. Weak regulation and ineffective enforcement allowed the buildup of risks that ushered in the financial crisis of 2007-2009. Much can be done to create a better system and prevent crises. Yet the lessons from the crisis have not been learned.

Admati and Hellwig seek to engage the broader public in the debate by cutting through the jargon of banking, clearing the fog of confusion, and presenting the issues in simple and accessible terms. The Bankers' New Clothes calls for ambitious reform and outlines specific and highly beneficial steps that can be taken immediately."

Global Geopolitics & Political Economys insight:

Straight talk about irresponsible banking and finance.

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The riddle of Europe’s single currency with many values -

The riddle of Europe’s single currency with many values - | Real Economy & Geopolitics |

By Wolfgang Münchau

"A European Central Bank survey shows that households in northern Europe have a much lower net wealth than those in southern Europe. Average German net assets per household are just under €200,000, while they are €300,000 in Spain and €670,000 in Cyprus. No, this not a typo."

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Thank a Simple Excel Error For Austerity Economics

Thank a Simple Excel Error For Austerity Economics | Real Economy & Geopolitics |
You know the much-ballyhooed theory that high national debt correlates to crappy economic growth? The one that's trotted out on a regular basis by politicians arguing for austerity budgets and sequestration?

"The glitchy data comes from a hallmark study on debt, Growth in a Time of Debt, from 2010. Since it was published, it's become a favorite of people like Paul Ryan, who mentioned it frequently during the Romney campaign. But a new meta-analysis of the study's original excel spreadsheet, by three UMASS economists, uncovered an incredible error that excluded as much as a quarter of the data concerning economic growth. To put that in perspective, the original paper found that countries with high debt grew -0.1% every year. Without the Excel bug, that number changes to 2.2%. "We will redouble our efforts to avoid such errors in the future," responded the scientists in a Wall Street Journal post today."

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Democracy and Class Struggle: Costas Lapavitsas "Cyprus Should Let the Banks Go Bankrupt"

Democracy and Class Struggle: Costas Lapavitsas "Cyprus Should Let the Banks Go Bankrupt" | Real Economy & Geopolitics |

Cyprus should let the private banks fail and create a public bank that focuses on strengthening the real economy.

No to the transfer of private debts of the Cypriot Banks onto the public of Cyprus.

Democracy and Class Struggle shares the frustration of Costas Lapavitsas with the Left who should be vocal in the protection of the real economy in Cyprus and its natural resources - a new public bank should be created immediately and the corrupt banking system should be allowed to fail.

The new public bank should protect small savers. Russia or European Union are not saviours of the Cypriot people just potential ruthless extractors of its natural gas resources.

Any good assets in the corrupt banks should be transferred to the new State Bank immediately, the natural gas resources of Cyprus should not be sold in a fire auction but protected so that they can assist Cyprus make a recovery in its real economy, the financial industry of  Cyprus which is the cause of the crisis should be shut down just like the banks.

The People of Cyprus must determine their own fate and not look to Brussels or Moscow.

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Costas Lapavitsas

Costas Lapavitsas | Real Economy & Geopolitics |
Costas Lapavitsas is a professor of economics at the School of Oriental and African Studies, University of London
Global Geopolitics & Political Economys insight:

For some of the clearest and best analysis of the eurozone crisis and a debunking of reactionary austerity economics and cynical social Darwinism every rational citizen with a conscience should read Costas Lapavitsas.

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Debtors' Prison: The Politics of Austerity Versus Possibility: Robert Kuttner: Kindle Store

Debtors' Prison: The Politics of Austerity Versus Possibility: Robert Kuttner: Kindle Store


"One of our foremost economic thinkers challenges a cherished tenet of today’s financial orthodoxy: that spending less, refusing to forgive debt, and shrinking government—“austerity”—is the solution to a persisting economic crisis like ours or Europe’s, now in its fifth year."

"Since the collapse of September 2008, the conversation about economic recovery has centered on the question of debt: whether we have too much of it, whose debt to forgive, and how to cut the deficit. These questions dominated the sound bites of the 2012 U.S. presidential election, the fiscal-cliff debates, and the perverse policies of the European Union. "

"Robert Kuttner makes the most powerful argument to date that these are the wrong questions and that austerity is the wrong answer. Blending economics with historical contrasts of effective debt relief and punitive debt enforcement, he makes clear that universal belt-tightening, as a prescription for recession, defies economic logic. And while the public debt gets most of the attention, it is private debts that crashed the economy and are sandbagging the recovery—mortgages, student loans, consumer borrowing to make up for lagging wages, speculative shortfalls incurred by banks. As Kuttner observes, corporations get to use bankruptcy to walk away from debts. Homeowners and small nations don’t. Thus, we need more public borrowing and investment to revive a depressed economy, and more forgiveness and reform of the overhang of past debts."

"In making his case, Kuttner uncovers the double standards in the politics of debt, from Robinson Crusoe author Daniel Defoe’s campaign for debt forgiveness in the seventeenth century to the two world wars and Bretton Woods. Just as debtors’ prisons once prevented individuals from surmounting their debts and resuming productive life, austerity measures shackle, rather than restore, economic growth—as the weight of past debt crushes the economy’s future potential. Above all, Kuttner shows how austerity serves only the interest of creditors—the very bankers and financial elites whose actions precipitated the collapse. Lucid, authoritative, provocative—a book that will shape the economic conversation and the search for new solutions. "


Review“Kuttner (The Squandering of America), cofounder and co-editor of the American Prospect, pulls no punches in his latest full-throated defense of Keynesian economics and repudiation of the modern neoliberal system . . . Kuttner’s deft overview of economic history—most notably his coverage of the Marshall Plan—demonstrates that economic stimulus can be very effective at ending recessions.”

—Publishers Weekly

"A highly readable, thought provoking analysis of America's—and the world's—situation, a unique blend of history, economics, and politics that shows a clear way out of our morass, if only our politics would 'allow us to get from here to there.' Kuttner explains why we don't have to be doomed to a generation of depression, but that current debt, finance, and austerity policies make that a likely prospect. Even those who disagree with his conclusions will find his wealth of historical insights invaluable."
—Joseph Stiglitz, winner of the Nobel Prize in Economics and author of The Price of Inequality

“Robert Kuttner has a gift for clear and forceful explanations of the complex dealings that brought the economy to its knees. Debtors’ Prison takes an innovative approach to economic history, using the lens of credit and debt to explore past boom-and-bust cycles and to illuminate the central issues in current economic debates. Kuttner’s impressive history also catapults the reader into the future, providing critical insight on strengthening the financial system. A must-read for anyone interested our economic future.”
—Senator Elizabeth Warren

“Debtors’ Prison is more than a devastating brief against the trans-Atlantic pursuit of austerity. It is a magisterial retelling of our history through the prism of the struggle over credit and debt. Navigating between countries and eras with the authority of a scholar and the narrative skill of a journalist, Robert Kuttner has written the authoritative guide to economic recovery and financial reform.”
—Jacob S. Hacker, co-Author of Winner-Take-All Politics: How Washington Made the Rich Richer—And Turned Its Back on the Middle Class
“Robert Kuttner nails the missing piece in Barack Obama’s presidency—the reason the American economy is still stalled and sickly. Read this book, then send it to the White House. Kuttner has the plan. The president needs to see it.”
—William Greider, author of Come Home, America
“No topics in modern political life have spawned more confusion, misdirected effort, and overall malarkey than ‘deficits’ and ‘debt.’ Robert Kuttner does us the enormous service of explaining which kinds of debt we should worry more about, and which kinds less—and how to manage public and private debt so as to sustain an age of broadly shared prosperity rather than of austere decline.”
—James Fallows, author of China Airborne
   About the Author

Robert Kuttner is cofounder and coeditor of The American Prospect magazine, as well as a Distinguished Senior Fellow at Demos, a research and policy center. He is a visiting professor at Brandeis University’s Heller School. He was a longtime columnist for BusinessWeek and continues to write columns in The Boston Globe, The New York Times Global Edition, and The Huffington Post. This is his tenth book.

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Hell No! The Ultimate Pushback against the Grand Bargain

Hell No! The Ultimate Pushback against the Grand Bargain | Real Economy & Geopolitics |
By Joe Firestone The underlying rationale for “a Grand Bargain” and the President’s deficit reduction budget including cuts to both Social Security (SS) and Medicare and many valuable discretionary programs, apart from the pragmatic justification,...


The underlying rationale for “a Grand Bargain” and the President’s deficit reduction budget including cuts to both Social Security (SS) and Medicare and many valuable discretionary programs, apart from the pragmatic justification, that he may be able to complete such a bargain with the Republicans and blue dog Democrats in Congress, is that the fiscal health of the United States requires that we can’t keep running annual deficits of the size we’ve been running. Why? Because that results in increases to our debt-to-GDP ratio, which in turn will cause the bond markets to drive up our interest rates higher and higher and eventually make interest on the Federal debt such a large share of the Federal Debt that we won’t have money for anything else. So, we have to implement a long-term deficit reduction plan to ensure the fiscal sustainability of the Federal Budget. To do anything else would be fiscally irresponsible."


I think that’s the essence of the President’s case for long – term deficit reduction. Then if one asks, well why make the burden fall on spending cuts rather than tax increases, the answer is that “tax increases” will never happen in today’s political climate. So, really the president has no choice, if he really wants to end this period of budgetary uncertainty, and also deal with the budget in a fiscally responsible way, then he must take the self-described “courageous” step of proposing cuts to the safety net including Social Security.


"For the last few years, many of us have set forth various arguments against this case, especially with respect to safety net cuts. Some arguments are about its moral aspects showing that the “Grand Bargain” is unfair because the President’s idea of “shared sacrifice” takes no account of economic concentration of wealth over the past 40 years, or culpability for the financial/economic crash, that has created the so-called “budget crisis”. Others show that Social Security doesn’t and can’t add to the deficit. Others focus on the economic damage the spending cuts will do to the economy versus the lesser, or even little, damage that would be done by reducing the deficits through tax increases on higher incomes and wealth. Still others argue against the cuts, saying that they’re too heavily focused on domestic discretionary programs and the social safety net and are not focused on defense where we have such a large budget compared to every other nation."


"All of these are good arguments and help with the pushback against the Grand Bargain. But none of them really show that the so-called problem underlying long-term deficit reduction, the eventual Federal solvency problem, is a false problem. Here’s what makes it a non-existent problem.

It’s false that If we keep running large deficits then we get increases to our debt-to-GDP ratio, which in turn will cause the bond markets to drive up our interest rates higher and higher, and eventually make interest on the Federal debt such a large share of the Federal Debt that we won’t have money for anything else."


"First, running a deficit and using debt issuance to run it are not the same thing. The Congress could reorganize the Fed under the Treasury, and then the Secretary could order the Fed to create the reserves needed in the Treasury General (TGA) to deficit spend. Of course, this isn’t legal now and would require action by Congress, but it’s worth pointing out that the coupling of deficit spending to debt is due to Congressional fiscal arrangements, the rules of the game they legislated. It is not due to any immutable laws of economics, finance, or politics.

The Treasury has something else it can do to both pay down all the existing national debt, cease issuing debt instruments, and decouple continuing deficit spending from increasing debt. That option is High Value Platinum Coin Seigniorage (HVPCS)."


"Under authority provided by Congress in 1996 the Treasury can have the US Mint issue platinum coins with face values specified by the Secretary. So, for example, the Mint could issue a $60 Trillion coin; deposit it at the Fed, where the reserves credited to the Mint’s account for this legal tender would eventually wind up in the TGA. I’ve discussed the technicalities, history, economic, legal, and political aspects of Platinum Coin Seigniorage (PCS) in my new e-book. But the main point here, is that if the President will use HVPCS, then


"– debt issuance could be ended,– all the old debt could be paid off,


– the debt–to-GDP ratio would eventually drop to zero, and


– any possible effect of the bond markets on the solvency of the United States would be gone for as long as we conducted our deficit spending with reserves created at the Fed resulting from HVPCS."


"So, in short, it’s up to the President. If he really wants to remove any possible political problem related to solvency, and any possible insolvency-based justification for deficit reduction and for cutting Social Security, Medicare, Medicaid, and other necessary programs that ought to be expanded rather than cut, then all he has to do is #mintthecoin; the $60 T coin, that is, not the trivial band-aid Trillion Dollar Coin (TDC) that will only bring the same “austerity” problem back next year."

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The Truthseeker: Looting Of America (E12)

"The man who jailed a thousand bankers tells us how to do it; Twice the size of the US economy exposed offshore; and Wall Street circles the nation's last assets. Seek truth from facts with former senior financial regulator Bill Black, The Price of Offshore Revisited author James Henry, former Wall Street executive Richard Eskow, Econned author Yves Smith, economists Stephanie Kelton and Dean Baker, and chief vampire squid Lloyd Blankfein."


"New Economic Perspectives’ William Black and Stephanie Kelton appear on RT’s Truthseeker. This episode focuses on the looting of America."

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US homeless numbers expected to rise as spending cuts deepen

US homeless numbers expected to rise as spending cuts deepen | Real Economy & Geopolitics |

"More than 630,000 Americans, equivalent to a city the size of Boston, are homeless, according the latest national estimate."


"Federal stimulus funding helped keep the figure flat year-on-year, but the National Alliance to End Homelessness, which published the report, said it expected a steep rise as a result of the current squeeze on government spending and growth in poverty."


"The national total of 633,782, based on the most recent official data for 2012, is calculated from the number of people sleeping rough or in shelters on a given night, meaning that far more people are likely to experience a bout of homelessness over the course of a year. In 2011 the equivalent figure was 636,017."

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The Resurgence of the Latin American Left: Steven Levitsky, Kenneth M. Roberts: 9781421401102: Books

The Resurgence of the Latin American Left

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The Resurgence of the Latin American Left [Steven Levitsky, Kenneth M. Roberts] on *FREE* super saver shipping on qualifying offers. Latin America experienced an unprecedented wave of left-leaning governments between 1998 and 2010.

"Latin America experienced an unprecedented wave of left-leaning governments between 1998 and 2010. This volume examines the causes of this leftward turn and the consequences it carries for the region in the twenty-first century."

"The Resurgence of the Latin American Left asks three central questions: Why have left-wing parties and candidates flourished in Latin America? How have these leftist parties governed, particularly in terms of social and economic policy? What effects has the rise of the Left had on democracy and development in the region? The book addresses these questions through two sections. The first looks at several major themes regarding the contemporary Latin American Left, including whether Latin American public opinion actually shifted leftward in the 2000s, why the Left won in some countries but not in others, and how the left turn has affected market economies, social welfare, popular participation in politics, and citizenship rights. The second section examines social and economic policy and regime trajectories in eight cases: those of leftist governments in Argentina, Bolivia, Brazil, Chile, Ecuador, Uruguay, and Venezuela, as well as that of a historically populist party that governed on the right in Peru.

Featuring a new typology of Left parties in Latin America, an original framework for identifying and categorizing variation among these governments, and contributions from prominent and influential scholars of Latin American politics, this historical-institutional approach to understanding the region’s left turn—and variation within it—is the most comprehensive explanation to date on the topic."

Global Geopolitics & Political Economys insight:

A good work to review some important facts and perspectives on Latin America's movement to the Left in the 21st century. The book reviews some important dimensions of Latin America's problems of development and equity.

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Scooped by Global Geopolitics & Political Economy! The Politics of Uneven Development eBook: Doner: Kindle Store

Download The Politics of Uneven Development by Doner: Why do some middle-income countries diversify their economies but fail to upgrade - to produce world-class products based on local inputs and technological capacities?

"Why do some middle-income countries diversify their economies but fail to upgrade - to produce world-class products based on local inputs and technological capacities? Why have the 'little tigers' of Southeast Asia, such as Thailand, continued to lag behind the Newly Industrializing Countries of East Asia? Richard Doner goes beyond 'political will' by emphasizing institutional capacities and political pressures: development challenges vary; upgrading poses tough challenges that require robust institutional capacities. Such strengths are political in origin. They reflect pressures, such as security threats and resource constraints, which motivate political leaders to focus on efficiency more than clientelist payoffs. Such pressures help to explain the political institutions - 'veto players' - through which leaders operate. Doner assesses this argument by analyzing Thai development historically, in three sectors (sugar, textiles, and autos) and in comparison with both weaker and stronger competitors (Philippines, Indonesia, Taiwan, Brazil, and South Korea)."

Global Geopolitics & Political Economys insight:

This book shows clearly that one has to have a thorough knowledge of the facts about a country's society, political life, and real economic organization, to understand its development prospects. Monkeying around with aggregate statistics to which sophisticated mathematical techniques can be applied on a selective basis, disregarding other imporltant types of factual evidence will not be the key to understanding of a country's development problems nor those of countries with similar problems. You have to know the facts about Thailand to assess Thailand's development problems and prospects. You can't apply some boilerplate policy formlula concocted by distant neoliberal economists at IMF headquarters to understand what is really going on in Thailand or any other country. This book will show you why with discussion of real examples. This will give you some idea of how Thailand is different from Russia or Argentina, if you know anything about those countries. You also might discover some common problems. Great for comparative analysis if you know something about what you are comparing.

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Iceland's Recovery - Economics Blog

Iceland's Recovery - Economics Blog | Real Economy & Geopolitics |
Iceland’s Recovery

Article Excerpt

By Tejvan Pettinger on February 15, 2013 in economics

Iceland’s crisis was brutally severe. With a bloated current account deficit and bad debts, Iceland experienced a severe balance of payments crisis and banking losses. Iceland responded by:

  • Not guaranteeing all banking debt. Many large banks failed and were seized by the government
  • Allowing the currency to devalue by 50%.
  • Imposed capital controls to prevent the outflow of money.

This response is in contrast to countries like Spain and Ireland. In Ireland, the government implemented a very costly bank bailout – which in turn caused the Irish government to seek a bailout.

Yet, just five years after allowing banks to go under, Iceland is being rehabilitated into the international capital markets, with rating agencies upgrading Icelandic bonds from ‘junk’ status to BBB. (Guardian)

Iceland has succeeded in stabilising the macro economy, reducing the debt to GDP burden, and importantly has seen positive economic growth – helped by a substantial devaluation. The devaluation also helped to rebalance the economy and reduce the budget deficit.

The collapse of the bloated finance sector had another advantage. Iceland’s traditional exporters have now found they could employ graduates at reasonable salaries. Previously, graduates had been poached by banks with seemingly inexhaustible supplies of money. This has helped rebalancing the economy to the more ‘real’ sector.

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Billionaires' Ball: Gluttony and Hubris in an Age of Epic Inequality: Linda Mcquaig, Neil Brooks: Kindle Store

Billionaires' Ball: Gluttony and Hubris in an Age of Epic Inequality: Linda Mcquaig, Neil Brooks: Kindle Store

"The concentration of wealth today in such a small number of hands inevitably created a dynamic that led to freewheeling financial speculation—a dynamic that produced similarly disastrous results in the last great age of inequality, in the 1920s. Such concentrated economic power reverberates throughout society, threatening the quality of life and the very functioning of democracy. As McQuaig and Brooks illustrate, it's no accident that the United States claims the most billionaires but suffers from among the highest rates of infant mortality and crime, the shortest life expectancy, and the lowest rates of social mobility and electoral political participation in the developed world."

"In Billionaires' Ball, McQuaig and Brooks take us back in history to the political decisions that helped birth our billionaires, then move us forward to the cutting-edge research into the dangers that concentrated wealth poses. Via vivid profiles of billionaires—ranging from philanthropic capitalists such as Bill Gates to hedge fund king John Paulson and the infamous band of Koch brothers—Billionaires' Ball illustrates why we hold dearly to the belief that they "earned" and "deserve" their grand fortunes, when such wealth is really a by-product of a legal and economic infrastructure that's become deeply flawed."

Global Geopolitics & Political Economys insight:

A good factual analysis of concentrated income and wealth derived from unequal exchange and various forms of exploitation. Ths authors analyze specific cases.

This book presents real factual evidence of the sources of unequal income and wealth in today's world.

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Tech's Rust Belt Takes Shape

Tech's Rust Belt Takes Shape | Real Economy & Geopolitics |

From the Wall Street Journal Online


Technology has long distributed its riches unequally. But the sector has seldom seemed so sharply divided between disrupters and the disrupted.

Computing pioneer International Business Machines Corp. IBM -7.34% on Thursday reported its revenue dropped 5% after failing to close big software and hardware deals."


"Many of the companies shaking up tech markets are fleet-footed startups. "You have a very audacious set of emerging companies that truly believe in the next five years they can replace these old-line guys," says David Wah, a managing director for technology, media and telecom investment banking at Credit Suisse Group CSGN.VX +1.03% AG."

Global Geopolitics & Political Economys insight:

This article gives evidence of the role of advertising and  wheeling and dealing unrelated to innovation or real contribution to productive capacity or real technological development in the fortunes of new "tech" corporations. Facebook, for example,  gains from the free content contributions of those who participate in its network. It sucks in revenue from the large corporations that use it for advertising, who in turn suck extra profits out of the consumer public while underpaying their workers or moving facilities offshore to countries that underpay their labor force. It is one cog in the global machine of inequality, unequal exchange and exploitation.

For a clearer idea of the relative fortunes of major technology firms, readers should refer to the tables and charts on the original article on the WSJ Online site.

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Prof. Costas Lapavitsas (SOAS): Eurozone. A Crisis of Financialised Capitalism

Keynote Lecture by Professor Costas Lapavitsas.

Keynote Lecture by Professor Costas Lapavitsas.

Dictatorship of Failure: Interdisciplinary Perspectives on the European Political and Economic Crisis. Symposium organised at the Helsinki Collegium for Advanced Studies, 15 November 2012.

Helsinki Collegium for Advanced Studies

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Robert Reich has a Good Heart but an Inadequate Grasp of Economics

Robert Reich has a Good Heart but an Inadequate Grasp of Economics | Real Economy & Geopolitics |
By William K.Black (Cross posted from


Read an excerpt from William K. Black's article below:



Robert Reich has written a column entitled “Why this is the Worst Recovery on Record.”  It’s an odd title because the article makes no reference to this being “the worst recovery on record.”  Unlike a newspaper column, we know that Reich chose the title, because it comes from his own blog.


The current U.S. recovery is not “the worst recovery on record” – it is not faintly close to the worst recovery on record.  Rhetorical claims like this are dependent on highly selective choices of what years one compares.  In 1937 and 1938, President Roosevelt listened to the incoherent claims of his economic advisors that stimulus was bankrupting the Nation and that it had spurred a sufficiently robust recovery that the private sector could now be relied upon to lead the Nation promptly back to prosperity.  The advisors recommended that FDR act urgently to impose austerity.  FDR cut spending and increased taxes and the Federal Reserve tightened the monetary supply.  The result was that a robust recovery from the Great Depression that reduced unemployment by two-thirds during FDR’s first term from a high of 25%.  Real GDP growth averaged 12% during that term.

Austerity promptly reversed this recovery and produced a second U.S. depression. In 1937-1938, there was a sudden rise in unemployment and a sudden fall in GDP.  “Recovery” was not “weak” in this era, it was an oxymoron.  The economy got sharply worse.  Austerity perverted a robust recovery into a second depression.


Marshall Auerback has provided an admirably brief summary of these events.


The ongoing U.S. recovery is weak, but it is a sustained, modest recovery because of modest stimulus during the first two years of Obama’s first term.  In Europe, austerity has twisted a modest recovery driven by material budget deficits into a severe contraction.  Reich’s own writings demonstrate that he knows that the U.S. continues to recover while Europe has done the opposite.  He cannot possibly believe that the U.S. recovery is the worst on record when he has observed and written about how austerity destroyed Europe’s recovery.


The Two Least Understood Aspect of the European Crisis

Anyone who has analyzed the European crisis understands that it was not initiated by a “debt crisis” or a “spending” crisis.  Nations like Ireland, Iceland, and Spain were being praised by ultra-conservative groups like Cato as the supposed exemplars of success of fiscal rectitude.  By now, anyone who has analyzed the European crisis understands the pernicious role that the euro has played in the crisis because it is not a sovereign currency.  By now, anyone who has analyzed the European crisis – including the IMF – knows that austerity has been a disaster that has caused a sharp contraction.


What even those who follow the European crisis are rarely saying, however, is the intersection of two facts about the crisis.  First, the current European contraction is not a “recession” in many nations; it is an über-Depression.  I explained in a prior column that unemployment levels in much of Europe are roughly comparable to average unemployment rates in the largest European economies from 1930-1938.  Unemployment rates in the periphery are sometimes multiples of the average unemployment rates in the largest European economies during the Great Depression.

The EU, however, claims that there is merely a “mild recession.”  The EU’s credibility is, unsurprisingly, in tatters.


Unemployment in Greece and Spain is greater than peak U.S. unemployment during the Great Depression.  The overall unemployment rate in the Eurozone is 12% – well over the U.S. unemployment rate in 1936, and half-again greater than the current U.S. unemployment rate.

The unemployment rate in Portugal – which the EU claims as an almost success – is roughly twice the U.S. unemployment rate in 1936.  Austerity has produced a depression in much of Europe, a depression so severe in several nations that it is worse than the Great Depression, and the Eurozone contraction is becoming more severe.  The Eurozone depression was gratuitous – it did not have to happen.  It is the product of economic dogmas that were discredited in 1937.  We have taught economists for 75 years not to inflict austerity in response to a contraction.

Global Geopolitics & Political Economys insight:

Another well founded and well reasoned expose on the folly of austerity economics and deliberately engineered social Darwinism.

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Kώστας Λαπαβίτσας

Kώστας Λαπαβίτσας | Real Economy & Geopolitics |
Κώστας Λαπαβίτσας


"Ο γερμανός οικονομολόγος Χάινερ Φλάσμπεκ υπήρξε μέχρι πρότινος επικεφαλής της διεύθυνσης για την παγκοσμιοποίηση και την ανάπτυξη στρατηγικών, της Διάσκεψης των Ηνωμένων Εθνών για το Εμπόριο και την Ανάπτυξη (UNCTAD). Υπήρξε Υφυπουργός Οικονομικών της Γερμανίας στο διάστημα 1998-1999, όταν Υπουργός Οικονομικών ήταν ο τότε ηγέτης του Σοσιαλδημοκρατικού Κόμματος Όσκαρ Λαφοντέν. Το 2005 αποχώρησε και εντάχθηκε στο κόμμα «Η Αριστερά» όπου συμμετείχε ως πρόεδρος για μια τριετία (2007-10). "

"Ο Χάινερ Φλάσμπεκ και ο Κώστας Λαπαβίτσας επισκέφθηκαν πρόσφατα την Κύπρο με πρόσκληση του ΑΚΕΛ, όπου είχαν σειρά συναντήσεων με τα πολιτικά κόμματα και συζήτησαν το προτεινόμενο πρόγραμμα της Τρόικα, τις δυνατότητες συγκρότησης εναλλακτικού σχεδίου και τις προοπτικές μιας ριζοσπαστικής πορείας για την κυπριακή οικονομία και κοινωνία. Το διάστημα αυτό, συνεργάζονται στην εκπόνηση μιας ευρύτερης μελέτης για τα αίτια της κρίσης της ευρωζώνης και τις δυνατότητες διαμόρφωσης μιας συνολικής εναλλακτικής ευρωπαϊκής πολιτικής. Η μελέτη πραγματοποιείται με τη στήριξη του Ινστιτούτου Ρόζα Λούξεμπουργκ και θα παρουσιαστεί επίσημως τον Μάιο (2013) στο Βερολίνο."

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Thatcher Gave More Power to Finance

Michael Hudson: Thatcher deregulated banking and made London the center of speculation and financialization


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Where We Are Now

Where We Are Now | Real Economy & Geopolitics |

By Dan Kervick

Margaret Thatcher is dead."

"Thatcher and Ronald Reagan were seminal conservative politicians who came to power in 1979 and 1980 at the end of a period of profound transformation in the Anglo-American world.   A postwar system forged in war, and built on a broad foundation of industrial labor, rising middle class prosperity, and an active government hand in economic development was transforming itself socially and economically into something quite different."


"Many of the increasingly well-educated and aspirational children of the postwar workforce were moving out of industrial labor and into a variety of non-labor services and professions, seeding the new social antagonisms and divisions these kinds of class shifts always entail.  With a globalizing economy, industrial production moved toward cheaper and less protected labor abroad, and the labor security that had once been so prized by the public came to be seen by many as something standing in the way of low consumer prices and economic dynamism.   An unpopular American war brought the era of universal male draft registration to an end, further widening the social gap between those with multiple economic options and those for whom military service was one of the few available escapes from a bleak economic future.  At the same time, the prosperous and mobile economies of the developed world, with their ravenous hunger for fossil fuels, had become dependent for their energy resources on politically unstable regimes outside their borders, making them vulnerable to costly energy supply shocks.   By the time Thatcher and Reagan came along, the postwar egalitarian and labor-centered order was moribund, and the two conservative leaders were able to tip it over.  The equality-minded left found itself without a programmatic alternative to the old consensus framework that had built a prosperous, deep and secure middle class on the wreckage of the depression and the industrial foundation laid down by the war.   To some extent that vacuum on the left still exists."


"Now, in 2008, we’re at the end of a similar cycle.  But this time what is ending is the political order that Thatcher and Reagan themselves helped build.  The collapse of 2008 has shown us a nakedly bankrupt and dysfunctional neoliberal system: a financialized and poorly regulated predator economy organized to funnel money to parasites collecting rents on the output of others whose aspirations are systematically squashed.  The system has given us unprecedented social inequality along with prolonged and seemingly permanent unemployment at levels that would once have been considered an appalling national scandal for all but the most incompetently run banana republics.  The system is loosely supervised by political elites who are alienated from their electorates and who rarely even pretend to serve the voters anymore.  These politicians are often little more than rent collecting bag men for the ownership class they work for.  A laughably unpopular US Congress occupies itself with performing obstructionist services for its paymasters and positively revels in its unresponsiveness to national needs.  The major media personalities and channels, employees of the small percentage of people who own the country, try to spread a veneer of normality over the gathering debacle, and distract the masses with pseudo-reality entertainments aimed at inculcating feelings of inferiority, humiliation and subordination.  And the events in Europe seem more demented by the day, as the mad inquisitors of the Euro-da-fé continue their persecution of the unfortunate."


"But these reactionary responses from the plutocracy are unsustainable and deluded.  Eventually, enterprising and alert politicians will seize both the ripe political opportunities that are now open to them and the moral high-ground, and will start to put together broad-based movements to sweep out the detritus of the old order.   Certainly this kind of innovation and risk-taking will not come from the current cohort of leaders.   Barack Obama’s political strategy seems to be to make himself as useful as possible to the stakeholders in the existing order, and to try to breathe new, sustaining life into the faltering ancien régime.  Along with his fellow-conservative fellow-leaders in Europe – David Cameron and Angela Merkel – Obama will surely go down as one of the more incompetent and obtusely destructive national executives in modern history.   In addition to being grossly unsuited to meeting the challenges of the times, Obama’s administration is also corrupt.  The most brazen crimes have gone unprosecuted; and wide-open political opportunities for progressive reform and change have been perverted to redound to the benefit of the super-rich.  The media poobahs opt to hand out bravery awards for this kind of obsequious pandering to the plutocracy, and Obama will no doubt be rewarded handsomely after 2017 with foundation grants, lucrative speaking engagements and other forms of corporate booty for services rendered."

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George Soros urges Angela Merkel to consider quitting euro

George Soros urges Angela Merkel to consider quitting euro | Real Economy & Geopolitics |
Billionaire speculator says single currency's prospects would be better without Germany, the eurozone's most dominant member


"George Soros, the billionaire speculator best known as "the man who broke the Bank of England" in 1992, has launched a stinging critique of Germany's role in the euro crisis and suggested the single currency's prospects would be improved if its most dominant member were to quit."


"In an incendiary speech made on Tuesday afternoon in Germany's financial centre of Frankfurt, the hedge fund trader told Europe's richest country it had gone too far during the bailout of Cyprus, was itself heading for recession and should either leave the euro or reverse its long held opposition to eurobonds – a form of sovereign debt that would mean each member country's borrowings were guaranteed by the whole eurozone.

"My first preference is eurobonds; my second is Germany leaving the euro," he said in his lecture, entitled: How to save the European Union from the euro crisis."


"It is up to Germany to decide whether it is willing to authorise eurobonds or not," he said at Frankfurt's centre for financial studies."


"But it has no right to prevent the heavily indebted countries from escaping their misery by banding together and issuing eurobonds."



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People Not In Labor Force Soar By 663,000 To 90 Million, Labor Force Participation Rate At 1979 Levels | Zero Hedge

People Not In Labor Force Soar By 663,000 To 90 Million, Labor Force Participation Rate At 1979 Levels | Zero Hedge | Real Economy & Geopolitics |
Things just keep getting worse for the American worker, and by implication US economy, where as we have shown many times before, it pays just as well to sit back and collect disability and various welfare and entitlement checks, than to work .The...
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Scooped by Global Geopolitics & Political Economy! The Political Economy of Latin America: Reflections on Neoliberalism and Development eBook: Peter Kingstone: Kindle Store

Download The Political Economy of Latin America: Reflections on Neoliberalism and Development by Peter Kingstone: Neoliberalism has been at the centre of enormous controversy since its first appearance in Latin America in the early 1970s.

"Kingstone provides a broad review of key debates focusing on the challenge of achieving more equitable development in Latin America. In a notably even-handed way, he persuasively demonstrates that solutions will require an institutional infrastructure that strikes a balance between well functioning markets and well functioning states, avoiding past extremes of ‘too much market’ or ‘too much state.’"
Philip Oxhorn, McGill University

"This is the most authoritative account of Latin America’s political economy since the 1980s, analyzing the region’s Trojan efforts to find the proper balance between states and markets. The book summarizes the best research by scholars, without dumbing down any of the cited works or skipping any central debate. But the book goes farther. It also advances the argument that democracy and markets, far from rival goods, can actually reinforce one another, but only if certain institutions are in place. Readers who are new to this topic or experts on the subject will find much to gain from this book. This book will become a classic."
Javier Corrales, Amherst College

"For those teachers and students interested in Latin American political economy, Kingstone's book finally provides a first rate, sophisticated and clearly written analysis that has been lacking for a long time. The Political Economy of Latin America convincingly shows how various types of neo-conservative and state-led solutions to economic development tried from the 1980s up to now have consistently failed to address poverty, education and a host of other basic needs because they have ignored the central role that government and civil society institutions play in promoting growth with equity. "
Luigi Manzetti, Southern Methodist University

About the Author

Peter Kingstone is Associate Professor in the Department of Political Science at the University of Connecticut.

Global Geopolitics & Political Economys insight:

Among other things Kingstone discusses problems in the implementation of Import Substitution Insustrialization, ISI plus problems in the formulation and implementation of policy packages that came to be associated with neoliberalism. A useful work for those who want to review some of the the paramaters of recent debates over Latin Amreican development.

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