Jamie Galbraith explains his interesting life

Watching the career path of James Galbraith has been a minor hobby of mine ever since I discovered that my interest in economics was directly related to how many of his father's books I had read. The fascination with whatever Galbraith's economics was called was based in my mind on the fact that papa John Kenneth (Ken) Galbraith grew up on a working farm in Ontario and entered the economics profession through the door of agricultural economics. He gave speeches for the Farm Bureau when starting out.

I believed this was important because:

1. I trust the intellectual habits and practices of those really smart farm kids. Farming is an Ur profession. Providing for the community’s nourishment is a LOT harder than it looks. It is the basis of civilization itself. Out of this scramble came the people who literally built the country. And they created social structures as enlightened as any in human history.
2. Yea, for the home team. While I envied the childhood of James and wished I could have sat in a corner as JKG discussed the affairs of the world with the best educated economic minds of his generation, I could not. Northwest North Dakota is a LONG way from Harvard. What I could do, however, was recreate the education the farm kid from Ontario got watching his parents and neighbors as they sought to invent a way to get farming to pay the bills out at the thin edge of civilization. Products of this struggle have a reality base that informs the rest of their thoughts. Done right, the resulting thinking can be quite spectacular.

And so, while I avidly read JKG’s books and articles and tried very hard to emulate his thought processes, I was really interested in Jamie’s life because, after all, he is only three years younger than I. If the economics that JKG and friends had been perfecting since the earliest days of Roosevelt’s New Deal was to survive, the next generation of economists would have to learn the institutional practices that actually pushed forward the project of eliminating grinding poverty while attempting to overcome the Great Depression. It is not beyond reasonable speculation that JKG would want at least one of his sons to follow in his intellectual footsteps. And so Jamie would become the crown prince of JKG’s explanations for how the American Industrial System actually worked.

If you read James’ memoir below, you will see that he got a training that was the product of JKGs best ideas. Harvard AND Yale. Professors with international reputations and probably a friend of the family. A “visiting scholar” appointment at Brookings when it was still relevant. And finally he wound up at University of Texas—Austin. This school had enthusiastically embraced all the neoliberal rationalizations in its school of economics so of course, young Jamie would not be welcomed there. However, UT-Austin had long been home to the best Institutionalists in the land led by the spectacular Clarence Ayres. Their wisdom was no longer welcome in the economics department either but they knew a fellow creature of the New Deal so gave him the job of Lloyd M. Bentsen Jr. Chair in Government/Business Relations at the LBJ School of Public Affairs.


The career contrasts between JKG and James are extremely interesting. JKG was by the end of the 1960s arguably the most famous face the economics profession would ever have. His books were read in dozens of countries. He wrote for Henry Luce’s Fortune magazine. He taught at Harvard and had acolytes all over the world. His 10-part video series on economics called The Age of Uncertainty (some episodes can be found on YouTube) was co-produced by the CBC, BBC and PBS. His breed of economic thought was accepted as the rational middle because the practitioners had done a mostly excellent job of running things—post-WW II reconstruction being the best example.

By comparison, James had a modest career that was useful. The man did not waste his life. But he was not the titan like his father—mostly because he had about 1/100 the opportunities to do a good job. In my humble opinion, the factor that explains this most simply was the change in zeitgeist. The economic theories of JKG had ceased to be cool. Where I come from, the enlightened, passionate Keynesians who had run the economics department at the University of Minnesota since the glory days of Alvin Hansen in the 1920s had long since forgotten the reason why Hansen was so enthusiastic about activist government economic intervention. Where he came from (Viborg South Dakota) such economic policy was literally a matter of life and death. This passion also informed JKG.

But Jamie did not grow up on a working farm, he grew up in a splendid home large enough to entertain a steady stream of guests eager to swap ideas with the leading light of what was coming to be called Keynesianism. Jamie's childhood economic demonstrations taught him that economics was this delightfully difficult problem to be solved, not a dangerous test against arctic-like winters and you must be clever enough to still have food in the spring.

Jamie's also suffered wrong intellectual turns even (or especially) considering his gee-whiz educational paths. Economics was changing through the addition of computing power. The math geeks would pose the big questions for the high-powered mainframes to crunch and suddenly, the great mysteries would be revealed through the statistical wisdom of regression analysis. Analysis as modeling guided by machine-perfect math sure sounds like a good idea.

Personally, I was not impressed. I wasted much of my youth building model airplanes and learned a profound lesson. The reason that model airplanes don't look or fly like real airplanes is that all sorts of problems are introduced when you try to scale the outcome. There are guys who want their scale models so authentic, they even want the rivets in the right place. Unfortunately, if the rivets get too small, they no longer can work as fasteners so they are reduced to decoration. Worse, there are physics problems that cause small airplanes to fly differently than large planes. For example, the governing bodies who make the rules for judging scale models have modified those rules so that models are still considered authentic even if the tail surfaces are oversized. Why? Because a WW II fighter with accurately-sized tail surfaces will barely fly—if at all. Oh those Reynolds numbers.

Then there are the problems of predicting behavior using mathematical formulas. Try, for example, to animate the walking behavior of a small toddler in a 3D animation. Using math formulas to predict such random behavior is virtually impossible. In fact, realistic cartoon behavior is really only possible if one puts markers on a real child, let him walk across the floor, take those marker locations and attach them to the model and animate the result. And yet, there are economists from around the world who actually believe they can predict large-scale human motion like market behavior with a few elegant math formulas. I am reminded of that arrogance when I watch just how difficult it is to make a self-driving car. And this is an EASY problem. There are states in USA that issue driver's licenses to 15-year olds.

When Jamie Galbraith lists the learning experiences that were mostly a waste of time he includes learning matrix algebra. (See paragraph #4 below.) So essentially he learned the same lessons as I only in a Harvard classroom. Unfortunately, this mislearning sunk the whole econ profession for at least 50 years. Worse, because this mislearning was so difficult and time consuming, other necessary things had to be dropped. The most serious is the fact that one can now get an advanced degree in economics without knowing the history of the subject. It's no wonder that economists have gotten almost everything wrong for the past 50 years.

So here's to James K. Galbraith who devoted his life to recreating the methods employed by the economists who guided the industrialized west to the greatest prosperity in human history. Historians are important too.

The economic nutcase behind the coup attempt in Venezuala

The economic takeover of the country with the largest oil deposits is being planned by a Milton Friedman disciple from Venezuela. He is currently at Harvard—that rat's nest of neoliberalism. Some say ideas don't matter. Well strap yourself in—apparently this guy has the ear of Donald Trump. Just ghastly!

Ricardo Hausmann Is Taking Milton Friedman’s Lessons to Venezuela

Tanya Rawal-Jindia | February 9, 2019


For a few years now, there has been a tendency to compare Donald Trump to Richard Nixon, but the more urgent comparison in the face of the Venezuelan crisis is one between two well-pedigreed economists: Milton Friedman and Ricardo Hausmann.

Under Nixon’s reign, Milton Friedman was the “intellectual” who started to gain excessive power. Friedman was a trained economist, earning a doctorate at Columbia University, with teaching and research stints at the Universities of Chicago and Stanford.

And under Trump, we have another trained economist: Ricardo Hausmann. He received his doctorate from Cornell University and is the director for the Center of International Development at Harvard University.

For years now, Ricardo Hausmann has been suggesting that the solution for Venezuela’s socialist “crisis” is a U.S. invasion or “intervention.”

Monetary Theory and the Left

Tony (probably correctly) believes that I should write more about monetary theory.

Good point. Without monetary reform, there is simply no way the the world can pay the huge bills that will be incurred running an effective program to combat climate change. So in no particular order, here are my excuses for not writing about the subject every damn day—like it probably deserves.

1) I have written extensively on money and the economics of development. I still consider the chapter on Money to be the most well-thought-out chapter in Elegant Technology. But over the years, I have sort of run out of things to say.

2) The "left" is notoriously uninterested in monetary debates—lord knows I have tried. I have heard money debated in barber shops, gas stations, feed mills, church basements—sometimes (rarely) even in political forums. I grew up in the corn belt. My grandfather was an active member of the Farmer-Labor Party. But I haven't heard anyone from the "left" discuss the money subject since I started at U Minn in 1967. And the few people I have tried to engage either get lost in the math or the fact that fractional banking is not as established / legitimate as the big myths of banking and finance. The fact that the evidence is beyond rational debate does not sway minds—especially those who believe that "the personal is the political" and so shun the notion that something as impersonal as money may be the most important political subject of them all.

3) That leaves the "right." There are people like Ron Paul who are very good critics of the Federal Reserve. But his "solution" is the Gold Standard. Now the Fed has fallen into the hands of some serious fools, but on their very worst days, they are still a superior alternative to the Gold Standard.

4) Ellen Brown. Enter her name in the search box of this blog and you will find dozens of posts related to some well-written argument she is making. She loves the Bank of North Dakota—easily the best idea Progressives ever had. Strange how no one has duplicated that institution in other states, but she has done a nice job of lighting the fire that may lead to a California version.

5) There are a lot of crackpots out there. Because the nature of money is a subject that is virtually absent in the mainstream financial press, most people who develop any theories at all are usually self-taught. Now because there are a wealth of good books written about money and folks like Franklin, Edison, and Ford took an active interest in the subject, it IS possible to get your arms around this sprawling subject by reading alone, but it is difficult. It's the folks who aren't willing to do the necessary homework that end up as cranks.

Anyway, I promise to try to address legitimate monetary questions directed my way.

On Class and Climate Change

In 1899, Thorstein Veblen would publish perhaps the most interesting, and misunderstood, book ever. It was called The Theory of the Leisure Class. Many, perhaps most, of the readers of this scintillating tome consider it a wonderful work of satire that highlights the foibles of the idle rich, and those who would emulate their lifestyles. And while I would agree that many parts of Veblen’s analysis are screamingly funny, we miss the point if we assume that Veblen was merely trying to entertain. Because beneath the chuckles, there is a deadly serious class analysis that goes a very long way towards explaining why a problem like climate change doesn’t get treated as seriously as it should be.

In Veblen’s world, there are two basic classes. The Industrial Class organizes the community’s necessary work. The Leisure Classes fasten themselves on the backs of the industrial classes “through force and fraud” in the often successful attempt at getting something for nothing. The Marxists then ask, “Aren’t your industrial classes merely another name for the proletariat?” This is important—the answer is NO.

Back in the day when Marxists preached that they were the friends, advocates, and only true representatives of the Proletariat, there was always something demeaning in their analysis. When someone picks strawberries all day in the hot sun, the Marxist description of the Proletariat and their troubles is still surprisingly accurate. But what do you call an farmer with 2500 acres under cultivation, or an engineer, or a big building contractor, or any number of important and often high paying occupations? They are obviously Industrial Class jobs but they all come with very different problems than face someone doing stoop labor. Obviously, there is an incredible amount of stratification within the occupations that can be found under the heading of “organizing and performing the community’s necessary tasks.”

Just as the Industrial Classes are stratified, so are the Leisure Classes. There is a large gap in income and status between a pickpocket and a hedge fund manager. But while there are hundreds of differences between the two major classes, many quite profound, the most telling is that when the Leisure Classes engage in conspicuous consumption and waste, their highest calling is uselessness. On the other hand, the goal of the Industrial Class is to be useful.

This class analysis is almost universally despised by the academic idea police. The right wing hates it because so many of their elites are little more than well-dressed thieves. The “left” (especially the Marxist varieties) hates it because it opens the possibility that there are enlightened, imaginative, and quite necessary “capitalists.” But it continues to be relevant because it describes the existing social order so much better than probably all the competing class descriptions combined.

Hard times coming?

For those of us who believe that energy is a primary need for survival, the collapse of oil prices since 2014 was quite frankly, surreal. How can a globe with a billion light vehicles not continue to need petroleum? The demands for liquid fuels are embedded in the design of our societies. Most people, unfortunately, view the oil giants as these powerful people who can get wars started to defend their interests. Up close, the people who actually get the gasoline to the neighborhood filling station see themselves in a mad, scary scramble to meet this insatiable demand—a demand that will not go away any time soon.

Of course, supply and demand do not always determine price. Lots of crazy stuff happens in the commodity markets so we can have low oil prices while global demand goes up. And high oil prices do not necessarily shrink demand—demand is built in, remember. Yes folks can cut out frivolous consumption but the rest of the demand is considered "inelastic." So high energy prices mostly damage the other folks trading in things that are considered less necessary than energy. So at some time, one of the primary economic laws will kick in—hello $6 a gallon gasoline. And if you run an restaurant, for example, be prepared for fewer customers with less money to spend.

Below is a YouTube of someone who was in charge of getting the crude that the majors convert to the fuels we need. Spent around 40 years at it. His explanation of the supply problem is clear and probably quite accurate.

Peak Fracking

Kunstler has a habit of speculation about the future with at best, partial information. But on this subject, he is spot on! Shale oil is a mirage. It is a secondary recover scheme that only works when there is plenty of money financing this crazy difficult / expensive scheme. In many cases, shale exploration does not even cover the investment in purely energy terms so eventually, even the hot money boys will find something else to do.

Of course, none of this is especially new. I knew folks in 1960s oil patch North Dakota who could have predicted that the long-term outcome for such scheme was non-producing wells.

Enjoy Kunstler at his most informative.

Protectionism in the age of solar cells, Part 2

When the Trump administration announced last week that it was imposing tariffs on solar cell panels mostly coming from South Korea and China, it appears that the progressive blogosphere was almost unanimous in condemning the action as an attack on solar energy.

I was dismayed that the neoliberal lies about free trade had apparently been accepted by so many. As Jon Larson wrote on Real Economics, “In certain corners of the economic world, this is a major story—mostly because it flies in the face of neoliberalism's first commandment—Thou shall not condone protectionism!”

The tariffs should be attacked, but not because they are tariffs, not because they are protectionist, not because they may lead to less imports of panels and therefore the loss of jobs of people installing them.

The tariffs should be attacked because they are not accompanied by a robust industrial policy that will help USA manufacturers replace panels no longer being imported, by panels of domestic manufacture.

Protectionism is an issue on which the Democratic Party and the left in general are very vulnerable. Basically, they have forgotten the actual history of industrial development: every single country that successfully industrialized did so behind trade barriers. Many readers may not believe me, but it is historical fact. For a relatively short but full explication of the fact that protectionism works, I point you to James Fallows’ December 1993 article in The Atlantic, “How the World Works.” For an entire book on this topic, the best is probably South Korean economist Ha-Joon Chang's 2007 book, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism, available as a large pdf file here. An excellent review of Chang’s book, by Chalmers Johnson, is here.

For a brief discussion of how this history was purposefully and deliberately eradicated from American universities and economics courses a century ago, read “Prophet of Prosperity” in a recent issue of The Pennsylvania Gazette of the University of Pennsylvania. The motive? “...landlords and other rentiers were reclassified as capitalists, just ones who invested in land and raw assets rather than machinery, and thereby earned “the increments of value attaching to land,” thus removing the social opprobrium of being exploiters, parasites and usurers. And, more importantly, to allow “money to make money.”

We like to taunt our conservative and libertarian opponents that you are entitled to your own opinions, but you are not entitled to your own facts. Well, the same applies on this issue, and to the neoliberals amongst us: you are entitled to your own opinions, but you are not entitled to your own facts. The facts are clear that historically, countries that successfully industrialized did so behind trade barriers that protected their infant industries, and protected the earning power of their working people. The facts are equally clear that since the imposition of economic neoliberalism and free trade on developing countries, and their enforcement by the World Bank, the International Monetary Fund, and other international NGOs, not to mention the USA government and others, the growth rate of the national economies of developing countries has been LESS than it was before neoliberalism and free trade. Those are the facts, and all the crap you were taught in college economics courses will not change them.

But protectionism alone does not work. There must be a national industrial policy to promote and encourage the development and growth of new industries. As originally developed by George Washington and his Treasury Secretary, Alexander Hamilton, and later in the 19th century by Henry Clay, Henry Carey, Abraham Lincoln (on Lincoln, see one of the best overlooked books on historical political economy, Lincoln and the Economics of the American Dream, by Gabor S. Borit, Memphis State University Press, 1978)., and others, protectionism was one pillar of a three-part program for national economic development. The other two were a national banking system, and internal improvements (what we today call infrastructure).

Protectionism in the age of solar cells

The Trump administration has annouced its intention to slap some tariffs on products mostly coming from S. Korea and China. In certain corners of the economic world, this is a major story—mostly because it flies in the face of neoliberalism's first commandment—Thou shall not condone protectionism!

As two guys who are serious students of industrialization in general and USA industrialization in particular, Tony and I are pretty supportive of some sort of economic protectionism. Tony's approach is very straight-forward—he looks at the historical record and sees that every nation that successfully industrialized did it behind tariff walls.

My take is that because the financial markets are hopelessly corrupt, shortsighted, and technologically illiterate, they are unable to properly value the infrastructure of industrialization. When financialization first started, there were a few protests at the ability of real scoundrels to seize and then cash in on assets they rarely understood, who in the process of their plunder, squandered a system of wealth creation that had taken decades to create. They pissed away USA's industrial crown jewels for a tiny fraction of what they were worth with their get-rich-quick schemes. These protests probably crested with Oliver Stone's movie Wall Street—an effort so excellent, I suspect Stone didn't even know how good it was.

Along with the plunder came the justifications for why this did not matter. Around here, these loony economic expressions for how the world should work, but doesn't, are lumped under the garbage pile we call neoliberalism. And in the world of the neoliberals, there is no greater sin than "protectionism." Yet here we are with a president who believes that tariffs and such are probably a good thing. He's about 30 years too late, but he seems to think USA industry should be protected. One other thing, the Asians have been about as brazen in their theft of intellectual property as anyone—including USA from GB. The Chinese were caught red-handed dumping solar panels. The party injured by this was actually Germany but a couple of USA manufacturers won some settlement with the Chinese. Ironically, both USA victims are foreign-owned—one German, one Chinese.

I have included four essays on this subject after the break:

1. The Asians seem to think this is a major shift in USA trade policy. My guess is that they will figure out ways to adjust to new market realities.
2. Lindorff seems to think these tough new trade rules are a manifestation of an unhappy empire that wants to slap around China and Korea for the crime of wanting a different foreign policy than the folks from Foggy Bottom.
3. Reuters, which always believes protectionism is a bad thing, argues that tariffs on solar panels will most hurt the solar panel installers.
4. The folks at Rolling Stone just assume this is Trump's way of throwing some roadblocks in the way of new green technologies.

All of these folks have a point. And we will probably hear a lot more on this subject. This is a protectionist proposal in a neoliberal world—a world with thousand of economists well-trained and motivated towards shooting this thing down. As someone who participated in the debate over NAFTA, I am very interested to see how this debate will differ.

The decline and fall of neoliberalism in the Democratic Party

If you are snow-bound in USA today, and want something to read, I highly recommend Ryan Cooper's excellent short summary of USA political and economic history since the New Deal, posted last week, The decline and fall of neoliberalism in the Democratic Party

Nations took various roads out of the Great Depression. Every one involved ditching liberal orthodoxy — deficit spending and the abandonment of the gold standard being the key two policies in most instances, which had to overcome resistance from business. In Germany, fascism removed "capitalist objections to full employment," wrote economist Michal Kalecki, by routing all deficit spending into rearmament and by keeping labor quiescent with political repression and permanent dictatorship. 

In the United States, the replacement ideology was the New Deal. After some initial failed experimentation with planning, New Dealers settled on a framework of stimulus, regulation, unionization, progressive taxation, and anti-trust, heavily influenced by Louis Brandeis (to be covered in the next article in this series). To get people back to work and prime the economic pump, vast new public works were built, and millions were directly employed by the state. Business — especially finance — was regulated, above all to prevent concentration. Unions were protected under a new legal regime created by the National Labor Relations Act. Taxes on the rich were sharply increased, both to raise revenue and to deliberately prevent the accumulation of vast fortunes. Finally, world trade was managed under the Bretton-Woods system.

These two paragraphs are an excellent summary of what the New Deal was -- and what was dismantled in a joint project of conservatives, libertarians, and neoliberals. This dismantling is why neoliberals are as much to blame for the rise of neofascism around the world. While conservatives, libertarians and the Republican Party, the past half century, constantly stoked bigotry by "feeding meat to their base," neoliberals joined them in destroying the "welfare state" policies that were enacted after World War Two to ensure that never again would fascism be incubated in a cauldron of economic misery and inequality. 

Cooper includes all the most important points of this history, with the exception of the race to the bottom initiated by NAFTA and free trade. Also, Cooper does not fully grasp that the prosperity of the tech boom under Clinton was mostly the result of the phase shift in the national economy resulting from the 1950s through 1980s build-out of the new technology of computers, which -- like all phase shifts in the economy -- began with government support and promotion of new technologies (in this case, computers are developed in military research programs during World War for ballistics calculations, fire control, aircraft simulation, radar, code breaking, and physics calculation for the Manhattan Project, as covered in my chronology HAWB 1940s-1950s Timeline of computer development shows crucial role of government.)

Cooper's article is the first of a four-part series examining the four major factions in the Democratic Party and American left today. This first part considers the neoliberals, which of course is the faction which currently dominates the Democratic Party leadership, though it is in a dwindling minority. It dominates because it has money, but not votes. 

The second part is The Return of the Trust Busters, the faction around Elizabeth Warren, which Cooper brilliantly traces back to Louis Brandeis. 

The third article is Bernie Sanders and the Rise of American Social Democracy.

The fourth and final installment is The Dawn of American Socialism, which focused on the faction led by the Democratic Socialists of America.

There is no consideration of the historically crucial role of the American School of political economy, which helps explain why Cooper does not include the disastrous "race to the bottom" initiated by NAFTA and free trade.

I also highly recommend Cooper's How to Crush Trump from December 27, 2017, especially this paragraph:

Then in 2020, Trump must be crushed at the ballot box. His corrupt administration must be thoroughly investigated, and any criminal acts punished. More importantly, the economic base of Republican plutocracy — Wall Street, monopolist corporations, and idle rich heirs and heiresses — must also be crushed. Monopolies must be broken up, taxes on the rich and corporations dramatically increased, and the size, profitability, and power of Wall Street sharply reduced with cricket bat regulations.

None of Obama's "don't look back, only forward," pursuit of bipartisan unicorns. Criminal activity must be ruthlessly targeted and vigorously prosecuted, ESPECIALLY by our political enemies.

The Political Economy of Seymour Melman

A reader (KF) sent me the following link about Seymour Melman—which is a good thing because I probably would have just blown it off otherwise. Because when I was first exposed to Melman, I wasn't all that impressed. I had a sociology professor that made us buy one of his books which soured me on the man before I had read a word. But those of us who were anti-war activists knew about him because he was one of the very few professors who were public with their anti-war stance. But because he was an academic, he came off as oddly stiff to those of us for whom being against the war was an exercise in fluctuating between being scared to death and being absolutely furious.

So it is with some pleasure I see that Jon Rynn has penned this excellent description of why Melman embodied that sort of thinking we in Minnesota were supposed to learn. And surprisingly enough—did. The Melman he describes and I share a great deal of thinking. And this is NOT because I read his book—I did not. That was the quarter I started my fight with my local draft board, and almost died from a ruptured appendix—spent three weeks in the hospital with an antibiotic drip and 104°F fever. So Melman and I came to similar conclusions on political economy by really different roots (routes).

There is another possibility here. Rynn may be punching up Melman's ideas because he is such an admirer. That's cool by me. I do the same thing to Veblen. Anyway...enjoy. And thanks again to KF

Protect the Petrodollar

The second most important story after the catastrophe of climate change is the quite related story of: What is the end game for the Age of Fire and Fossil Fuels?

This is no small question. The incredible energy density of fossil fuels has made possible a huge population that will be fighting over the table scraps as these fuels become more rare and expensive. Just remember, any fuel that is not renewable is by definition running out. The role of fuels like gasoline in the food supply is beyond important. And while activities like freezing food for preservation can powered by solar or wind with a few changes, the idea of a battery-powered tractor or combine is still mostly a fantasy.

Here in USA, the end of the Age of Petroleum promises to especially difficult. We have been a net energy importer since about 1970 and while we sold off the country's industrial crown jewels and some prime real estate to help pay the bills, such actions were but a drop in the bucket compared to the massive oceans of oil we import every day. In 2012, the trade deficit in oil was over $300 billion and while fracking has recently lowered that amount to less than $15 billion in 2016, fracking is a secondary recovery technique designed to extract the last remnants of a depleted oil field. Of course, selling off the industrial crown jewels means that we make less of our needs every year—we now make less than 2% of our shoes for goodness sakes.

But the pain has mostly been rendered invisible because of the agreements USA managed to get agreed to in the 1970s when Richard Nixon closed the gold window. The most important plus the USA got by being the superpower was the agreement that the medium of exchange for the petroleum trade would be the dollar.

But we should remember a few fundamentals about money so we can understand why the petrodollar is so important.

The form money takes seems important to some, but in fact this is the most irrelevant issue (sorry goldbugs). The important question is: What makes money valuable?

1. Money is valuable if it can be exchanged for something else you want or need. Monetary cranks insist that paper or electronic money should be able to converted into something more intrinsically valuable like gold. Problem is, gold has very little intrinsic value compared to something like oil so the petrodollar is a FAR more stable store of value than gold could ever hope to be.
2. Money is valuable if you need it to pay off persons who can make your life miserable. As Peter Cooper, the Greenback Party Presidential candidate, would say, "If you can pay your taxes with it, the money is good." Of course, the same can be said for money used to pay off mortgages, etc. Creditors use police powers to enforce their currency rules.
3. The third way money is made valuable is when it is a monetization of human genius. When Japan's PM Abe tried to drive down the value of the Yen in 2012, he discovered that the factors usually blamed for driving down the value of a currency by the monetary pundits didn't work for the Yen. Turns out that if you can trade Yen for a Lexus (or thousand of other perfectly good examples), by gum it is worth something.

Bitcoins meet none of these criteria. Therefore its value is quite ephemeral. On the other hand, the petrodollar IS backed by force. The big problem is that it isn't easily-bullied pipsqueaks like Iraq or Libya challenging petrodollar supremacy. This time it's Russia and China. And while the Petrodollar is so powerful that it can withstand a bunch of shocks, it also has a bunch of enemies. Bringing down the petrodollar would make much of the world's population very happy. So while it is still powerful and backed by murderous people with insanely destructive weapons, the petrodollar is no longer invulnerable. We should all keep an eye on this story. There isn't a LOT of good writing on this subject but I found three articles worth reading.

Robert Kuttner reviews new biography of Karl Polanyi

Long time readers of this little niche of the pixelsphere know that Jon and I do not have much respect for Karl Marx and marxists in general. Jon especially has some entertaining anecdotes he collected from his 1970s travels in Eastern Europe, he uses brilliantly to illustrate and embellish his critique of Marxism. For example, astonished at the poor quality of post-war construction he observed in East Germany, Jon wryly notes, "It must a really, really bad economic doctrine that can get Germans to forget, in less than one generation, a basic skill like pouring concrete."

Our alternative to Marx is Thorstein Veblen, who coined the term "conspicuous consumption" in his 1899 classic, The Theory of the Leisure Class: An Economic Study of Institutions. From Veblen's school of economics we get many of the too few economists who foresaw the financial crashes of 2007-2008 and who have been accurate about the state of the real economy, such as James Galbraith and Michael Hudson. Their branch of economics is called institutionalism. Ring a bell?

Another alternative to Marx is Karl Polanyi, who, like Veblen, combined economics with anthropology and sociology to create a deep and incisive critique of capitalism. Marxists may find Polanyi somewhat more palatable than Veblen, since a key influence in Polanyi was his residence in Vienna in the 1920s, when the city was governed by social democrats and democratic socialists who also happened to be competent government administrators of their many socialist and hybrid socialist programs and policies. Hence, the city of that period was knows as Red Vienna. To get a bit ahead of ourselves, and quote from the book review below:

The great prophet of how market forces taken to an extreme destroy both democracy and a functioning economy was not Karl Marx but Karl Polanyi. Marx expected the crisis of capitalism to end in universal worker revolt and communism. Polanyi, with nearly a century more history to draw on, appreciated that the greater likelihood was fascism.

The reviewer is Robert Kuttner, co-founder and co-editor of the USA progressive magazine The American Prospect, one of five co-founders of the Economic Policy Institute, and professor of social policy at Brandeis University.

Putin's farmer

This is a story about a German farmer named Stefan Dürr who has taken his considerable skills to Russia where he has organized enough agriculture to have become one of Putin's goto guys on the subject. We last met Dürr in 2012 in a post on Catherine the Great and her policies that lured German farmers to Russia beginning in the 1760s. Apparently Putin believes that this was one of Catherine's better ideas (it was).

Well, now this story has not only made it to Deutsche Welle (an eminently establishment German broadcaster) but they have seen fit to post it to Youtube. The reason seems to be that because of Dürr and folks like him, Russia has not only weathered sanctions to their food supply, but they have upped their agricultural game to the point where she just had her best harvest IN HISTORY.

In other words, Russia is beginning to prosper because a former KGB agent has by plan, or sheer dumb luck, or some combination, executed a Producer Class economic maneuver of the first order. Import substitution is hard to do and yet they have done it. And it is all based on the recognition of the incredible value of German agricultural practice. Apparently, Putin learned a great deal while stationed in Dresden.

HAWB 1940s-1950s Timeline of computer development shows crucial role of government

HAWB - How America Was Built

Libertarians like to shout their belief that “the welfare state has created nothing.” I wonder if they think the welfare state was not the one in the 1930s through 1960s that funded the basic research, then specific research to create transistors, computers, and the internet. Perhaps they think NASA was somehow not part of the welfare state? Perhaps all the spin-offs of NASA--such as modern medical monitoring equipment--or the Apollo Guidance Computer, which drove forward the technological boundaries of integrated circuits and software development as well as computers in general--do not really exist because “the welfare state” could not possibly have created them? (The libertarian ideology apparently must be kept pure–shades of the doctrinaire Marxist-Leninist!) Perhaps all those spinoffs are just figments of the fevered imaginations of those terrible statists who want to “redistribute wealth”?

People like Jeff Bezos and Bill Gates and Peter Thiel and every single other chest-pounding libertarian CEO of Silicon Valley (it is frankly disgusting that so many people in the industry given such support to organizations like the Reason Foundation) would have NOTHING, absolutely effing nothing, were it not for what the U.S. government did in the 1930s through 1960s that resulted in the creation of computers and the internet. These people owe everything they have to the United States of America. Without those government programs and that government support — and let's not forget the tens of thousands of kids that were educated at public land grand universities — there would be no computers, no software, no internet, no transistors, no semiconductors, no Silicon Valley, no Silicon Valley fortunes, no Microsoft, no Intel, no Apple, no PayPal, no Amazon.

TIMELINE of Government Support for the Development of Computers

October, 1919. The Army and the Navy granted RCA the former American Marconi radio terminals that had been confiscated during World War One. Admiral Bullard received a seat on the Board of Directors of RCA. The result was Federally-created monopolies in radio for GE and the Westinghouse Corporation and in telephone systems for the American Telephone & Telegraph Company. The following cooperation among RCA, General Electric, the United Fruit Company, the Westinghouse Electric Corporation, and American Telephone and Telegraph (AT&T) brought about innovations in high-power radio technology, and also the founding of the National Broadcasting Company (NBC) in the US.

Germany to Jump to Russia – U.S. Deep State has Lost

The latest rumblings from Berlin suggest that the SDP is going to cave, once again, and become the junior partner in Merkel's CDU-run government. This comes after the collapse of the so-called Jamaican coalition talks (CDU, Greens, and FDP.) You could smell that fiasco in the middle of North America. But that attempt comes after the SPD and CSU lost significant fractions of their vote in the last election and needed new blood. But Greens and FDP? That would be like Bernie Bros hooking up with the Koch brothers. (It seems to me that any coalition named for Jamaica should be negotiated to the sweets sounds of Bob Marley and good Ganja and the Krauts probably tried it with polka, bier, und schnapps.)

Of course, the interesting question is whether the German government will keep pursuing their hopelessly stupid neoliberal agenda because that is what the crooks at Deutsche Bank want, or will they begin catering to the industrial interests that really keep the economy going. (Producers vs Predators, ja) The problem with running a Producer agenda is that it is exactly what the EU and USA does not want.

My take is that while an economic realignment is seriously overdue, it will face major hurdles. The Neoliberals will not give up easily. On the other hand, there are elements in the German psychic that really like doing business in Russia and so this may lead to Germany abandoning sanctions. Luongo below has thoughts on this.

Wiping Out Puerto Rico’s Debt Without Hurting Bondholders

Even before Hurricane Maria leveled the island of Puerto Rico, their economy was already in a world of hurt. They were attempting to refinance $74 billion in debt when Maria inflicted another $55 billion in property damage and caused $40 billion in lost economic output.

But hey, Puerto Rico is part of USA and we just spent the last nine years wiping out the massive banking losses incurred when the financial system crashed in the 2007-8 recession. The method used was a little gimmick called "quantitative easing." If we can bail out a bunch of crooked banksters, we should surly be able to rebuild an island responsible for a significant fraction of global Viagra production.

Below Ellen Brown explains just how this could be done. Of course, this does not mean it will be done. It's one thing to bail out crooked banksters—it's quite another to help poor people struggling to survive.

Neoliberalism—the catastrophic idea that won the day despite being wrong about everything

1973 turned out to be the major economic watershed year for most people alive today. Because that was the year that the pro-growth assumptions of the Keynesians were run out of town.  I was in college when it happened. It was a college known for its Keynesian perspective. The head of the economics department, one Walter Heller, had been JFK's top economic advisor and liked to brag that he taught the principles of Keynes to the President of the USA. In fact, almost anyone who ever had Heller for a class, or had even just met him professionally, had heard this boast. I actually enjoyed his JFK stories because he told them to illustrate the point that even "mere" politicians could understand a set of ideas that had a well-deserved reputation for being difficult.

The University of Minnesota had been "Keynesian" since Alvin Hansen became a full professor in 1923. Actually, calling Hansen a Keynesian is more than a little bit misleading. The USA midwest had only recently been settled so there was a constant stream of political agitation for an economics that represented the world views of people who were attempting to claw a civilization out of some very empty places. Hansen grew up in Viborg South Dakota among people who were attempting to grow row crops and other agricultural pursuits on grassland that had never been plowed. For such people, economic plans that emphasized development were the only ones that would possibly interest them. He studied these ideas under Richard Ely and John Commons at the University of Wisconsin—another new and developing state. So Hansen already was a believer in pro-growth economics long before Keynes ever published his General Theory in 1936.

That Hansen was obviously a "Keynesian" before he ever heard of the man was not unique to him. Marriner Eccles, hands down the best central banker the USA has ever had, was "accused" of being a Keynesian because of his guidance of the Fed during the Roosevelt years. No less a figure than Ken Galbraith called Eccles the most important Keynesian in the land. And yet Eccles claimed to his dying day that he had never read Keynes. For men like Hansen and the Mormon from Utah Eccles, calling them Keynesians was merely a label used by lazy academics and journalists who weren't about to go to the trouble of understanding why folks from frontier settlements might have independently developed pro-growth economic ideas.

Below is a Guardian article that explains how the feudal / imperialist economics came roaring back when the Keynesians faltered in 1973. Their story is about the battle of ideas between Keynes and Friedrich Hayek. My story is that the Keynesians lost because by 1973 their profession had far too many Leisure Class hacks (like Paul Samuelson) and far too few giants like Hansen and Eccles who understood the importance of the Producer Classes and their interests (no matter how they were labeled).

I have written about Hansen and the USA "Keynesians" before:

Wednesday, June 3, 2015
Frances Perkins and the fight for decent working conditions

Wednesday, August 6, 2014
Heiner Flassbeck on the search for an enlightened capitalism

Sunday, November 6, 2011
Waking up to the relentless idiocy of neoliberalism

Neoliberalism: the idea that swallowed the world

The word has become a rhetorical weapon, but it properly names the reigning ideology of our era – one that venerates the logic of the market and strips away the things that make us human.

Stephen Metcalf, 18 August 2017

Last summer, researchers at the International Monetary Fund settled a long and bitter debate over “neoliberalism”: they admitted it exists. Three senior economists at the IMF, an organisation not known for its incaution, published a paper questioning the benefits of neoliberalism. In so doing, they helped put to rest the idea that the word is nothing more than a political slur, or a term without any analytic power. The paper gently called out a “neoliberal agenda” for pushing deregulation on economies around the world, for forcing open national markets to trade and capital, and for demanding that governments shrink themselves via austerity or privatisation. The authors cited statistical evidence for the spread of neoliberal policies since 1980, and their correlation with anaemic growth, boom-and-bust cycles and inequality.

Neoliberalism is an old term, dating back to the 1930s, but it has been revived as a way of describing our current politics – or more precisely, the range of thought allowed by our politics. In the aftermath of the 2008 financial crisis, it was a way of assigning responsibility for the debacle, not to a political party per se, but to an establishment that had conceded its authority to the market. For the Democrats in the US and Labour in the UK, this concession was depicted as a grotesque betrayal of principle. Bill Clinton and Tony Blair, it was said, had abandoned the left’s traditional commitments, especially to workers, in favour of a global financial elite and the self-serving policies that enriched them; and in doing so, had enabled a sickening rise in inequality.

Over the past few years, as debates have turned uglier, the word has become a rhetorical weapon, a way for anyone left of centre to incriminate those even an inch to their right. (No wonder centrists say it’s a meaningless insult: they’re the ones most meaningfully insulted by it.) But “neoliberalism” is more than a gratifyingly righteous jibe. It is also, in its way, a pair of eyeglasses.

Peer through the lens of neoliberalism and you see more clearly how the political thinkers most admired by Thatcher and Reagan helped shape the ideal of society as a kind of universal market (and not, for example, a polis, a civil sphere or a kind of family) and of human beings as profit-and-loss calculators (and not bearers of grace, or of inalienable rights and duties). Of course the goal was to weaken the welfare state and any commitment to full employment, and – always – to cut taxes and deregulate. But “neoliberalism” indicates something more than a standard rightwing wish list. It was a way of reordering social reality, and of rethinking our status as individuals.

Sanctions—economics at its most destructive

Using economics to destroy is perhaps the sickest manifestation of the dismal "science." This is mostly because sanctions only really work when the target is weak. As the world is fast finding out, the Russians may no longer be a superpower but they still have the tools to counter a few sanctions. In fact, the economic adjustments forced on the Russian Federation with the latest round of sanctions may have done their economy a world of good. They have discovered that lots of folks want what they can make, grow, and sell.

The Russians have also discovered that their own economic weapons are quite effective. European agriculture is still staggering from the loss of their Russian markets while Russian agriculture is arguably doing better than at any time in the past century. And as Tom Luongo points out below, their presence in the market for the fuels that run the world's nuclear power plants is quite significant.

But lost in all the discussions of who can do what to whom is the fact that all these sanctions and counter-sanctions diminish everyone's economic possibilities. Building the sustainable civilization will be an act of cooperation—NOT confrontation. And the biggest loser of all is very likely the USA—the biggest sanctions bully on the block.

According to the Guardian, "How economics became a religion"

If there is one position I have maintained for as long as I have been writing this blog it is that, "Far from being a science, conventional economics is just bad theology."

I grew up in a parsonage. I had religion crammed up my nose from before I could remember. I fell in love with science because it offered a refuge from that sort of thinking. In my old age, I have made peace with much religious practice—SOMEONE has to bury the dead, after all, and this is something religious practitioners do fairly well. But I certainly do NOT want religious thinking around questions that are not religious. I consider someone who would pray that their god would heal their broken brakes to be crazy.

Theological thinking applied to economics is just as crazy. And yet, we see it all the time. And this article shows that the problem has become so obvious, even The Guardian can see it. Of course, as the "left" house organ of neoliberalism, they probably aren't about to do anything meaningful about their new point of view. This probably isn't even much of a start. But as someone who has taken a great deal of flak in life for questioning the "scientific" claims of the economics profession, I do find their new awareness oddly pleasant.

R.L. Bruckberger on American School Economist Henry C. Carey

Last month I posted a large article on American School Economist Henry C. Carey, The only economists who ever created a national economy. The article was drawn almost entirely from the 1965 Pulitzer Prize winning history book, The Greenback Era: A Social and Political History of American Finance, 1865-1879, by Irwin Unger (Princeton University Press, 1964). One of the most intriguing references cited by Unger was R.L. Bruckberger.

Raymond Léopold Bruckberger was a French priest of the Dominican order. At the beginning of World War Two he requested the order allow him to join a combat unit, and served in the French mountain light infantry and commandos. After the collapse of the French army, Bruckberger became chaplain general of the French Resistance. He was awarded the Croix de Guerre and the medal of the Legion of Honor for his role in the Resistance. After the war, he lived eight years in the United States, researching and writing his book Image of America, published by Viking Press in 1959. Prominent American historian Arthur Schlesinger Jr. wrote a front-page review of the book for the New York Times Book Review, comparing Bruckberger to Alexis de Tocqueville.

One chapter of his book focuses on American School economist Henry C. Carey, and is entitled, "The Only American Economist of Importance" The title is taken from a 5 March 1852 letter by Karl Marx and Friedrich Engels, in which they wrote that Carey is “the only American economist of importance.”

Bruckberger inlcuded some excerpts from Carey that directly assault the key tenets of conservative, libertarian, and neoliberal economic thought. And, of course, Bruckberger frames Carey’s economic thought as being distinct from, and hostile to, today’s economic thought dominated by the British school. Contrast Carey’s belief that man’s struggle to master nature necessitates the creation of a cooperative society, with neoliberals' belief  (as per Margaret Thatcher) that “there is no society.”, only a never ending struggle of personal interests mediated by the working of markets. Carey’s belief also foreshadows Veblen’s analysis of the need for organized cooperation in the industrial processes of production. And Carey's analysis of humanity's struggle to master nature reinforces the point I have made in the past that the most important economic activity a society undertakes in the creation and dissemination of new scientific and technological knowledge. In The Higgs boson and the purpose of a republic (July 2014), I wrote:

....what is wealth? Is it really hoards of cash, or stockpiles of precious metals? Consider: Why do we have computers now, when there were none 200 or 500 or more years ago? Certainly, 500 years ago, all the raw materials that go into making a computer were available. There was lots of silicon laying around, and there was a lot of petroleum, with which to make plastics, sitting in the ground. There was the same presence of germanium and silver, and copper, and whatever else is needed to make a computer, 500 years ago, as there is today. What is so different today that we can make computers now, but could not 500 years ago? The answer, of course, is knowledge - we first had to develop, acquire, and master, the various facets of science that allowed us to make use of those latent natural resources, then apply that science to actual physical processes of production, or what we call technology. So what wealth really is, is the human power of thinking: reason, investigation, hypothesizing, testing, figuring out why things are the way they are -- and then figuring out how that new knowledge can be used to change the way things are.

In other words, the knowledge required to master nature.

One more note: Bruckberger identifies Carey as a Jeffersonian (there is an article in Bruckberger's book devoted to Jefferson previous to the article on Carey). Since Carey was a foremost advocate for the neomercantalist policies of Hamilton—a protective tariff, a national banking system, and massive government investments in infrastructure—Carey thus brings together and melds the two contending factions of early American history: Jeffersonian, and Hamiltonian.

Following are excerpts from pages 156-165 of Bruckberger's Image of America. At the end of this post are more results of an index search in economics textbooks.