Wednesday, August 3, 2011

The debt ceiling debate distraction

Thanks to Tony's generosity, I am currently reading Marriner Eccles 1950 memoir Beckoning Frontiers.  (Don't worry Tony, now that I have seen what this is worth over at Amazon I'll be VERY careful with it.) This is a book I probably should have read 30 years ago because it is THAT informative.

Eccles was the head of the Federal Reserve during the New Deal and no less an authority than John Kenneth Galbraith called him the most important New Dealer of them all.  I am only halfway through the book and am willing to believe that if anything, Galbraith was vastly understating things.

What made this book a perfect read these days is how instructive it was to see the economic madness on full display during the debt ceiling debate and compare it to the arguments that Eccles faced in 1935.  If you are of the opinion that Larry Summers or Austan Goolsbee are drooling idiots, you should read the 1930s economists at Harvard and Yale explaining how the Great Depression was somehow going to heal itself.

Keep in mind, Eccles was an enormously wealthy Mormon banker from Utah who had basically saved Utah banking during the Depression.  He even had to organize the group that bailed out the bank owned by the Mormon Church!!  So he is this hero banker that is being asked to serve on the august banking bodies and make important speeches.  Considering how unlikely it was that a Mormon from Ogden became FDR's goto guy on economic and monetary policy, Eccles must have been impressive!

Yet when it came time to reorganize the Fed in 1935 so it could act with authority to monetize the New Deal, he ran into powerful opposition from both Carter Glass AND Henry Steagall (yes those guys) who were worried that this cowboy was going to endanger their pet project--The Federal Reserve System--which was not even 20 years old when FDR was inaugurated.  But what really freaked out the old guard on the banking committees was that Eccles was questioning the received wisdom of the sound money / gold standard boys.  The disciples of Alfred Marshall.

So here we are, facing the ginormous project of transitioning out of the Age of Petroleum, and we have a President using the power of that office to explain the need for austerity measures that will actually kill people--using the principles of Marshall.  The poor man doesn't even know there are alternatives including those that have actually worked in the past.

Of course, what we are REALLY missing during the current economic calamity is another Marriner Eccles.  They went and named the Federal Reserve building after him but if anyone with his views walked into that building today, he would probably be shot on sight.

And while we are having this let's-pretend debate over the debt ceiling, the real problems of climate change and Peak Oil march on.

How long before we wake up to climate change?
By Marshall Helmberger

When given the choice between an inconvenient truth and a reassuring lie, the polls show most Americans will opt for the reassurance. But sometimes, inconvenient truths have a way of intruding on our comfort zone. 
Just ask the folks in Texas and Oklahoma, a region that is experiencing what can only be described as slow-motion incineration. Three-quarters of the state of Texas and most of Oklahoma are currently in exceptional drought, the most intense category of drought. Many cities in that region have experienced unbroken weeks of high temperatures in excess of 100 degrees and the forecast calls for more of the same as far as the eye can see. 
We all know it gets hot in Texas in summer, but here are the forecast high temperatures from Intellicast for the next week in Crawford, the Texas town made famous by George W. Bush: 105˚, 105˚, 104˚, 105˚, 106˚, 107˚ and 107˚. To make matters worse, unusual humidity is expected to accompany the heat. And this isn’t an unusual week. It’s just more of the same weather that has gripped the region for more than a month. 
While drought cripples one part of the country, other regions are experiencing unprecedented flooding. And it isn’t just in the U.S. From Australia to Pakistan, to Russia, extreme weather has become the norm across the globe. 
We’re told by the overwhelming majority of climate scientists to expect more of the same… much more, in fact, as the concentrations of CO2 in the atmosphere continue to rise at accelerating rates due to the increased burning of fossil fuels. 
That’s the inconvenient truth that most Americans seem unwilling to accept. Of course, they’ve had plenty of help along the way, from a well-funded and effective public relations effort funded almost entirely by the oil, gas, and coal industries—one that has tried to raise doubts about the reality of climate change in hopes of forestalling steps that could actually lessen the impacts. 
Critics dismiss any attempt to link extreme weather events to climate change, even though climate change models have pointed to more frequent outbreaks of drought, excessive heat, flooding, and severe storms. That is, until the Northeast gets hit by a big snowstorm in January. That always gets the critics harrumphing. “Look, it snowed two feet. Climate change is a fraud!” 
While it’s true that attributing any one weather event to climate change, or the lack thereof, is questionable, the latest data from the National Oceanic and Atmospheric Administration makes an undeniable case that our climate is warming, and dramatically so. 
Unlike day-to-day weather events, the data recently released by NOAA is part of the once-a-decade updating of climate “normals.” These normals are based on a thirty-year average, so every ten years, a decade is added and the oldest one is dropped from the mix.
And because the data reflects a decade’s worth of records from thousands of weather stations across the country, it doesn’t track changes in day-to-day weather, it tracks the longer-term weather patterns we refer to as climate. And as we reported last week, the NOAA data shows that average temperatures increased in all 50 states, particularly in the northern tier of states, like Minnesota. In Minnesota, January nights are now nine degrees warmer, on average, than they were in the 1970s. That’s a dramatic difference and its part of a global trend of warmer temperatures, particularly in the overnight hours. more
This is pitch-perfect Institutional Analysis.  MacDonald should get an award for this!

Obsolete Expertise: Another Big US Energy Problem
Gregor MacDonald Aug. 3, 2011

If you came of age in the twenty years leading up to the millennium, it’s likely you will treat energy as a non-limiting input to the US economy. As a journalist, policy maker, or economist, you are far more likely to produce political explanations when faced with economic dilemmas. The Great Recession has offered the perfect occasion to witness the phenomenon, a financial crisis which specifically kicked off amidst 150 dollar oil in 2008. Instead of advising the President that the country faced debt-deflation, with a nasty overlay of high commodity costs, the White House economic team has drawn from the post-war playbook which holds that if you stimulate the economy generally then the system will magically reorganize itself. Well, that hasn’t happened and it’s not going to happen. 

The barrier to understanding the US economy’s structural problem was hatched in the previous two decades of declining energy costs. Those were good times. Unfortunately, this inculcated the view that our problems were most often discretionary, of our own making. Well, guess what. The US economy did not choose to stop growing in 2007. Thus, the recommendation that we simply “choose” to starting growing again rings rather hollow. But that is the nature of obsolete expertise, which will flog the same prescriptions ad infinitum, well past failure.

For over two years now, this blog has recommended a more targeted version of Keynesianism. In contrast to Whatever Keynesianism—which advises we throw as much money as possible at the whole system, a quickly depleting process that makes the status quo only more sclerotic—I have strongly advocated for policies which would attack energy input costs. Indeed, as illustrated in the chart above, if you agree the decline of energy expenditures from above 10% of GDP to just below 6% of GDP boosted the US economy, you must agree the quick trip back to 10% must have hurt. Worse, the stubborn levels post 2008 during high unemployment are nothing but painful. more

No comments:

Post a Comment