Discussing the Future of the World Economy and Some Levity

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inet banner.jpgThe Institute for New Economic Thinking conference in Bretton Woods, New Hampshire this weekend is a star-studded affair if you follow economic wonkery. The presentations here are fascinating but probably too dense on the whole for me to do a good job intermediating more than a a half dozen or so to the public who read TWN.
Among those I have run into here are British Financial Supervisory Authority chief Lord Adair Turner; Nobel Laureate Joseph Stiglitz and his wife media expert Anya Schiffrin; Economic Policy Institute President Lawrence Mishel; financier George Soros; Naked Capitalism blogger Yves Smith; American Prospect editor Robert Kuttner; Economic Strategy Institute President and new Foreign Policy blogger Clyde Prestowitz; former India Central Bank Governor Yaga Reddy; UT Austin economist James K. Galbraith; Financial Times columnist Martin Wolf. . .
Nomura economic analyst Richard Koo, IMF Alternative Executive Director for the US Douglas Rediker; IMF Executive Director for China Zhu Min; Swedish Parliament Member and economics expert Leif Pagrotsky, Thomas Reuters Global Editor-at-large Chrystia Freeland; the Washington Post‘s Neal Irwin and Stephen Pearlstein; Carmen Reinhardt of the Peterson Institute for International Economics; Brookings Institution fellow Paul Bluestein; economist George Akerlof; Institute for New Economic Thinking Director Rob Johnson; former US Treasury Secretary Lawrence Summers; historian and Keynes-chronicler Robert Skidelsky; and former British Prime Minister Gordon Brown; among others.
This is a great meeting — but in part it’s the willingness of this group to go into deep dives on serious economic questions while lacing a lot of this with humor that makes this gathering more fun than it might look on the surface.
Right now I am listening to a session on what we can learn from past economic crises. Richard Koo offered a valuable survey of balance sheet recessions and lessons that could be drawn from them. The most important warning that Koo offered was that nations should not engage in budget deficit slashing while the private sector is still deleveraging, which is what continues in the United States. But given the budget deal that seems to have emerged last night, the US is on track to do exactly what Koo has warned Fed Governor Ben Bernanke and Council of Economic Advisers Chair Austan Goolsbee against.
But there is some fun here in the side chatter and late hours. Many of the economists here gather to share gossip and the latest econometric twists in “The Cave” — which is a comfortable, old speakeasy in the basement of the Mt. Washington Hotel.
One of the fun moments of levity last night was Lawrence Summers admitting in a conversation with Martin Wolf that he is one of the few who went to Washington to escape politics.
— Steve Clemons

Comments

15 comments on “Discussing the Future of the World Economy and Some Levity

  1. Warren Metzler says:

    Dan Kervick, Thank you for your response, because it demonstrates to me one of the ways most educated people ignore the economic disaster that is unfolding. I accept the discount window at the Fed as valid.
    Bank A knows because of individuals and business people visiting its loan officers and requesting loans, there is a good lending opportunity out there. So it goes to the Fed and borrows some money, at say 2%, and then loans that money to the aforementioned applicants, at say 7%; and that 5% margin is where it gets the funds to pay its expenses and make a profit. Keeping some of the money it borrows in cash to meet the reserve requirements. Which I propose, from common sense, ought to be in the realm of 15%. Just as all prudent financial advisers tell people to save about 2 months of expenses for rainy day circumstances.
    That expands in the money in society, in direct relation to business and income expansion. That will never be an inflationary stimulus. That is no different than me going to the bank and getting a loan to expand my business. And getting the money based on my credit score, which is based on my previous business record.
    But if the Fed says, go ahead and borrow and don’t put any in a reserve, we’ll do that for you by putting that 15% in your account here (the account used by the Fed to clear interbank checks and money transfers), that is an inflationary stimulus, because that encourages the bank to act in a unsound manner, which will lead to poor decisions, that can lead to a poor economy, and inflation.
    What the Fed is doing in the deficit debacle is inventing money to pretend to give to the Treasury, so the Treasury can lie to us and cut checks for money that doesn’t really exist. And that is now, close to excess of a Trillion dollars every year. That is what Japan begin to do in the early 1990’s and they are in serious serious trouble now; and coupled with their Tsunami expenses, the future looks quite bleak for them.
    But all problems have a solution, which involves a return to right living, which in the case of a government is to stop funding things that it makes no sense to fund: a large military, paying people’s medical bills, giving rich people massive funds through sweetheart contracts, interfering with much of the world, acting like a sugar daddy to many, trying to control the agricultural situation with crop supports and tariffs, etc.
    DanS, I absolutely want the government to withdraw from Iraq and Afghanistan, give up every single military base outside our borders, and reduce the military to a small core; as the US did after every war prior to wwii. And as I mention in the paragraph above, many other things. All of which would lead to a balanced budget and no national debt in probably ten years or less.

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  2. Dan Kervick says:

    Sorry Warren, but I think your fears of money printing are exaggerated. Of course the Fed prints money! They are the monopoly issuer of the currency in our monetary system. As our economy grows, the money supply needs to grow along with it, so that we don’t stifle economic activity through a dearth of financing. Banks and their borrowers are the primary drivers of monetary expansion, and are supposed to create credit and debts in response to opportunity in the economy. The Fed generally obliges the deposit creation by creating more deposits in the banks’ accounts at the Fed so that the banks can satisfy their reserve requirements.
    Now, we certainly need better regulation of these financial services to avoid repeats of the bubbles and flim-flam that crashed the economy, and we need to prosecute fraud. But we can’t have a growing economy without monetary expansion as well.
    Our government can finance many of its own expenditures via money creation, and so long as the government is spending the money on real goods and services – that is, on expanded economic activity – then there is no reason that the money creation need cause inflation. Demand pull inflation only happens when the increased flow of dollars chases goods in a stagnant economy that is lagging behind. But our economy is running significantly below capacity, with massive unemployment. Under the circumstances, it would be good for the government to simply manufacture the money it needs to fund more expenditures, and then use the money to boost production and purchase goods and services from the unemployed and underemployed parts of our economy.

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  3. DonS says:

    I am neither smart nor savvy enough when it comes to economic theory to know the way out of our economic mess. Hell, I can’t even frame the right questions. On a common sense basis, it seems that ever expanding debt is not prudent, though there are arguments for deficit spending during periods of recession. What does seem confusing, if not criminal, is that many of the actors that rail against government spending and regulation — in certain areas — are equally strident in the cry to enlist or exclude the federal government from restraining robber baron behavior in the ‘private’ sector. And in large part our government collaborates.
    It seems, at best, inconsistent to talk about responsibly managing the debt crisis while turning a blind eye to some of the very largest contributors to the crisis. For example, to blithely exclude frank recognition of three debt-financed wars of choice as tangential to current government crisis marks one as a big part of the problem, and no part of the solution.
    Similarly, to sweep under the rug the fraud and mishandling of the ‘too big to fail’ wealth transfer of public funds to financial oligarchs similarly marks one as willfully blind to reality. And, of course, in both these instances the collaborating conspirators, willfully or not, are the politicians who rubber stamp the momentum of crass money transfers into wasteful, debt ridden, and inefficient economic “activity”.
    To wring one’s hands about Medicare imploding government’s financial viability is a cheap excuse for lack of integrity and honesty to throttle the thieves in the ‘health care’ oligarchy, not to say that the ‘richest nation in the world’ cannot provide basic health care to all it’s citizens.
    The list could go on. My point would be that picking on the powerless as the source of bloated deficits is easy, and taking the meat axe of across the board cuts seems a dramatic ‘answer’. But it’s merely a capitulation to the script of acceptable actions sanctioned by an oligarchy that really doesn’t seem to care much about the economic collapse — through super inflation or massive deflation — because their well being is insured in any case.
    So I would challenge conference attendees to call a spade a spade, in the spirit of political economy, and not just accept the constraints of polite academic or political parameters. E.g., a Larry Summers should be pilloried, not politely applauded.

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  4. Warren Metzler says:

    DanS, I just had to respond to your FDL quote, about families and governments not having the same proper response to economic crisis. I am glad to hear this, because this belief, I believe, is the fundamental core for those who support deficit financing. And it is time it is fully laid on the table. It was, I believe, first introduced by Keynes, who, after having read his seminal treatise, I have concluded was an insane man who never once had a piece of evidence to support his views.
    I have read a lot about the Great Depression, and I am clear that deficit spending never works. Yes, more people have jobs, but only through increasing taxes. And that is a crazy way to act, because you have to raise taxes a lot more than the salaries to pay for those jobs, covering all the salaries of the administrators and administration of any such job program. And the economy NEVER sufficiently recovers to have taxes in good times fund that deficit (one of Keynes main points). As we see today, the deficit keeps growing, now so much even the Energizer Bunny commercials would be too embarrassed to make such claims.
    Do you realize that for several years the Fed buys most of the Federal bonds by printing money? Do you not believe that eventually is going to lead to massive inflation, and possibly a Zimbabwe or 1920’s Germany situation????!!!!
    I propose that any government is just a group of civil servants providing functions for the citizenry at large; hopefully functions that are valid, but, I propose, very very very often, functions that degrade society and stifle progress. And the rules by which a government acts successfully (its action facilitate the success of its citizens) are IDENTICAL to those followed by successful families and individuals.
    What evidence do you have that results in you supporting deficit spending, and the theory that government spending can stimulate improvement in the lives of its citizenry.

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  5. Dan Kervick says:

    I have to agree with susan. For a meeting that is supposed to be promoting and advancing the cause of “new economic thinking”, it really sends a very bad message to sign up people like Larry Summers and Gordon Brown as the headline keynoters. If I were a young economics graduate student intellectually captivated by the challenges posed by the crisis of the past three years, and dreaming bold dreams of changing the world through better economics, then seeing those names at the top of the program would hardly make me think this is a conference to which I need to pay attention.
    We already have Davos. If this conference portrays itself as just a more academic Davos, with mildly chastened neoliberals merely retooling and cleaning up the rough edges, then real innovators are going to take a pass.
    To be fair, many of the participants seem to have a much better idea of the changes we need than would be suggested by the keynoters.

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  6. Steve Clemons says:

    thanks Dan — glad to hear that you are taking a look at the papers which are being loaded on to the INET website as they become available. The Koo presentation video is very well worth watching.
    best, steve clemons

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  7. Dan Kervick says:

    I’ve been reading some of the papers, most of which have been posted by now, and several of them are quite interesting. I recommend the Davidson and Seccareccia papers. I haven’t gone through the Koo presentation yet, but I’m sure its good.
    However, so far I haven’t read any papers that contain truly revolutionary and paradigm-overturning ideas. What do the conference participants think? Who is, by consensus, the most innovative thinker at the gathering?
    The sad thing is that no matter what these economists manage to come up with, there seems little chance that anything they say will have the slightest influence of the incompetent and demagogic buffoons in Congress and the White House. The gap between conventional wisdom and what actually needs to be done is so vast, there doesn’t seem to be any politically viable way of bridging it.
    I have a sense of doom. The combination of the corporate and Wall Street capture of Washington with the craven vote-hunting and donation hunting of Washington’s submissive and heedless politicians could push this country into a revolutionary situation.
    I’m so sad for my son. Washington is destroying his future, and there doesn’t seem to be anything that can be done about it.

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  8. John Fullerton says:

    Is it out of the question that Democracy is lost? If it is not yet useless to vote, then if we can generate enough interest and motivate the voters to participate then perhaps this reticent president would come with us, because it appears he’s not a change leader.

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  9. Don Bacon says:

    spending cuts?
    from the Congressional Budget Office:
    “The federal government incurred a budget deficit of $830 billion in the first six months of fiscal year 2011, CBO estimates

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  10. Tank Man says:

    “You would never have known that Democrats had spent
    months resisting these

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  11. brigid says:

    Steve, I’ll bet all the participants and presenters in your conference all make six figures or more. They are busy discussing policy and pontificating for people who are middle class or destitute. In my town the average annual family income is around $36K. These people will go into retirement relying nearly completely on Soc. Sec. (current reports say that is true for at least half of workers approaching retirement) and their only health care will be Medicare. Yet the talking heads and the policy makers (GOP) are telling us these middle class folks who are just barely staying alive now, are getting too much of a govt. provided safety net, which they already pay for. So they want to eliminate Medicare and give Soc. Sec. to Wall St. and get a shrunken 401K in return.

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  12. susan says:

    Not too long ago Naomi Klein wrote:
    “Back in 1991, Summers argued that the subject of economics was no longer up for debate: The answers had all been found by men like him. “The laws of economics are like the laws of engineering,” he said. “One set of laws works everywhere.” Summers subsequently laid out those laws as the three “-ations”: privatization, stabilization and liberalization. Some “kinds of ideas,” he explained a few years later in a PBS interview, have already become too “pass

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  13. DonS says:

    While discussing the future of the world, are any participants discussing the future of the US, right now? Like how the GOP-tea thugs just handed the country, particularly ordinary workers, a budgetary turd sandwich, and the President of the United States has decided not only to accept it but to endorse it as the finest fillet mignon?
    Really, is there anything this president will not do, short of naming Paul Ryan chief economic advisor (far fetched?), to advance the retrograde economic agenda of Wall Street and the conservative right? Since the budget charade is just beginning, we may well find out how cowardly and crass he can yet become.
    FDL says it pretty well:
    “You would think that a sentient President of the United States would be embarrassed, ashamed, and contrite after one of the more mindless and destructive governmental performances in years. Nope. Not the President who foolishly believes the federal government needs to tighten its belt because he

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