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Austerity, power & BBC bias



George Osborne gave a revealing interview (1'52" in) to Radio 4 yesterday – revealing, not untypically for the BBC, for what it did not say.

Osborne said that sometime in the "next two or three years":

Markets, and indeed the country, will look to governments to set out plans for how they are going to eventually bring balance back to the public finances.

The first thing that was not said here – and certainly not by his fawning interviewer – is that the more educated parts of the country will be looking for no such thing. Intelligent economists (as well as me) agree that fiscal austerity will be counterproductive. With demand for gilts strong – even at negative yields – government borrowing is sustainable for now. And the best way to get it down is simply to ensure a strong economy. As Maynard Keynes said in 1933: "Look after the unemployment, and the Budget will look after itself."

Which poses the question. Why, then, would anybody prate about the need for austerity?

Which brings us to something else that was unsaid – that whilst austerity might not be technically necessary as a tool of macroeconomic management, it suits the interests of financial capital, a section of which pays Mr Osborne handsomely (another fact unsaid in the interview).

The reason for this is simple. For a given inflation target (the inflation target shouldn't be given but let that pass) monetary and fiscal policy are substitutes: tighter fiscal policy means looser monetary policy and vice versa. And this combination – what Osborne called fiscal conservatism and monetary activism – disproportionately benefits the finance sector for several reasons:

 – Many trading strategies carry very low returns even when they pay off; various carry trades, arbitrage or near-arbitrage, or picking up pennies in front of steamrollers. To make them pay well requires leverage. Which needs cheap and easy money.

 – Low interest rates and QE raise asset prices. And guess who benefits from these.

 – As Costas Lapavitsas & Ivan Mendieta- Muñoz show, bank profits depend a lot on the net interest margin. And this is often higher when banks' financing costs are lower. As Thomas Philippon and Guillaume Bazot have shown, the finance sector is oligopolistic, so lower costs don't get passed onto customers.

 – Low interest rates encourage people to take on more debt, to the benefit of banks. They also encourage savers to "reach for yield" and thus entrust their money to high-charging fund managers. If annuity and savings rates were high, savers would be less inclined to buy expensive funds.

Whilst fiscal austerity doesn't serve the interests of the country as a whole, therefore, it does suit the finance sector.

And it has disproportionate influence over policy. We don't need conspiracy theories to appreciate this. Nor is it because the sector pays Mr Osborne's wages: he served its interests long before he entered its employ. Nor is it even because of direct lobbying, important as that is. Financialization-Feature

It's also because of what James Kwak calls "cognitive capture". Finance professionals enjoy undue influence because they are perceived to have high status and expertise and network with politicians and journalists. They thus benefit from both the mere exposure effect and from the fact that, as Adam Smith said, the "respectful attentions of the world [are] more strongly directed towards the rich and the great, than towards the wise and the virtuous.

Yet another mechanism of influence has been described by Timo Walter and Leon Wansleben. Policy-makers, they say, have been drawn into "a kind of ‘ontological complicity’ with the dynamics of financialized capitalism" because large liquid markets give central banks more means of influencing the economy and hence greater power.

In these ways, financialization is self-reinforcing: a bigger financial sector gives finance greater pwoer.

Which is why I say that interview with Osborne was so inadvertently revealing. The (one-sided) discussion was framed in terms of what seems best for the country as a whole. But this of course is a fiction. Policy-making is not a technocratic exercise in what is best for the country but rather a matter of the extent to which policy is constrained by the influence of capital.

But how does that influence operate? How strong is it? Whose interests therefore does policy serve? These are questions which BBC usually overlooks. Which means that it is systematically and dangerously biased.

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Immunity Must Be Overruled for Police & Prosecutors to Save Everyone




Once upon a time, we use to live in an honorable society. All systems move toward corruption and they inevitably move to protect their own agents. Ben Franklin wanted to create a legal system based upon the Scottish model where judges were nominated by lawyers and not politicians. He lost that argument and we have been paying dearly ever since. People see these protests and blame the blacks. They are ignorant of what is taking place in our legal system. It is not just about the blacks. The entire system has become so corrupt and this is why the United States has more people in prison than any other nation in the world including Russia. If you simply drive on federal property and forget your drivers’ license, you must serve 30 days in prison. A prosecutor will not get credit for a conviction in the Feds UNLESS you go to prison! Does that mean that Americans are the worst criminals on the planet? Or simply does it mean that it is time to change the system.

Proprietorial abuse is NOT limited to blacks. New York City specializes in prosecuting anyone who competes against the New York bankers. When I asked a lawyer why no New York banker has EVER been criminally prosecuted, he laughed and said, “You don’t shit where you eat!”

This was the prosecutor on my case — Richard D. Owens. We are heading into a civil war because the Supreme Court has held that prosecutors can do anything whatsoever. They can even knowingly seek the death penalty for people they know are innocent because the government should always be above the law.

In my case, under the direction of Owens, they seized Princeton Economics solely because my lawyers gave them one week to return the money they stole or we would file suit, which would end the takeover of Republic National Bank by HSBC.

They seized everything when we were NEVER in default and our clients were supporting us against the banks. The bank was illegally trading in or accounts and tried to claim that their own staff was assisting me from hiding losses they created. The problem was that we bought portfolios, but we were not managing them. We had to repay the note regardless of the performance. The allegation made no sense. We had issued notes buying the portfolios at their original cost with generally 10 years to repay covering their losses which were about 40%.

When the prosecutors finally figured out that the bank lied, they summoned me to a private reverse proffer session where Richard D. Owens admitted they knew I had never stolen anything. Yet he added, they would not drop the charges. They wanted me to plead to a conspiracy with Edmond Safra who was dead. I refused. To prevent me from helping our clients in suing the banks, they then imposed a gag order on me to prevent me from assisting my clients for LIFE!.

They used the charge of contempt without any description of a crime or any specific order to produce anything to purge the contempt, which is unconstitutional, but law means nothing in New York City. Clients even offered to put up the $1.3 million in cash to end the contempt and the court denied it, resulting in my lawyers simply saying this was just to prevent a trial making it impossible to produce anything. This was all just to protect the bank.

What is blatantly obvious is that $1 billion in our notes were sold to the bank to hide our profit. HSBC then redeemed our notes for $606 million, pocketing about $400 profit in foreign exchange so they could hide that from the public.

Because of this immunity that the Supreme Court has bestowed on police and prosecutors, there is ABSOLUTELY nothing you can do to defend yourself whatsoever regardless of your race, religion, or gender. Equal protection of the law does not exist! They are above the law and police have been abusing their position routinely. A friend who knew someone involved at HSBC commented it was a deal “too good to pass up,” which has always stuck in my throat wondering how much was paid back in bribes. Any of the major firms that compete against the bankers in New York are charged in New York, destroyed, and their bones are picked over by the New York bankers – i.e. Drexel Burnham (Philadelphia) and REVCO (Chicago). When a New Yorker is involved, MF Global, they are never charged.

Until the Supreme Court abolishes this unreasonable immunity, why should we ever expect this tension to subside?  The protests are far better off in front of the Supreme Court for until that law is changed, there will NEVER be any reform. They have charged the three officers involved in Floyd’s death. That will not create lasting reform until the law no longer protects them.


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What to watch on jobs day: The unemployment rate continues to climb but not equally for all demographic groups



In April, the Bureau of Labor Statistics (BLS) reported that 20.5 million jobs were lost and the unemployment rate rose faster than ever before, hitting 14.7%, the highest unemployment rate since the Great Depression. May’s unemployment rate is expected to be far higher. Initial unemployment insurance claims suggest an excess of 10 million more people lost their jobs between mid-April and mid-May, the reference period for tomorrow’s report.

In advance of tomorrow’s jobs data from BLS, let’s take a minute to look more closely at the unemployment rate across various demographic groups and consider the extent of economic pain missed in the official count of the unemployed. Because of the use of the microdata in our calculations, the numbers in the figure below are not seasonally adjusted and therefore do not match the topline seasonally adjusted data released by BLS. The microdata, however, allow us to measure the unemployment rate and calculate the adjusted unemployment rate across a variety of groups not reported by the BLS.

The official unemployment rate is in dark blue in Figure A below. As you can see, the unemployment rate is incredibly high across the board. Except for those with an advanced degree, the unemployment rate of all groups has exceeded the highest level the overall unemployment rate hit at the height of the Great Recession, when it reached 10.0% in 2009 (and all groups have exceeded their group’s highest unemployment of the Great Recession). Even though jobs were lost across the board, the data indicate that job losses were particularly stark for black and brown workers, those who are less likely to be able to economically weather the storm. Historically higher unemployment rates and lower liquid savings make job losses even more devastating for African American workers and their families.

The highest unemployment rates in April were found among women generally, black and Hispanic workers, and especially Hispanic women, whose unemployment rate hit 20.5% in April.

The figure also shows that young people have been hit especially hard in this pandemic recession. As of April, more than one quarter (28.1%) of 16-23 year olds are unemployed. Those graduating right now are in a particular tough spot, as they are experiencing extremely high unemployment rates and low job opportunities but do not qualify for unemployment insurance, even under the expansive definitions of the CARES Act. A jobs seekers unemployment insurance program would provide much needed assistance to these young people without sufficient or recent work histories to qualify under current programs.

Furthermore, the unemployment rate is much higher for workers with lower levels of educational attainment. Even among the relatively more credentialed, those with historically more opportunities in the labor market, one in 10 workers with a bachelor’s degree are unemployed.

Figure A

The light blue bars and the totals off to the right of each set of bars represent an estimate of the unemployment rate if all those who are out of work as a result of the virus were counted as unemployed. This “adjusted” unemployment rate includes those who are officially unemployed, the misclassified (the excess number of those who reported that they were employed but not at work for other reasons), and those who had been employed but left the labor force when the virus hit but would otherwise have been counted as unemployed if they were actively seeking work. The misclassified are calculated across various demographic groups as indicated by BLS’ discussion of Table C found here. They suggest that many workers who classified as employed, but not reporting to work for “other reasons,” should be counted among the temporarily unemployed, not the employed.

Furthermore, millions of would-be job seekers have left the labor force in the time of COVID-19 for various reasons, whether it’s because they don’t see any prospects in their occupation, they are not looking because they are concerned about their health or the health of members of their household, or they have to care for a child whose school or daycare closed. When those workers, many of whom left the labor force during the stay-at-home orders, are added in to the number of unemployed, the “adjusted” unemployment rate would have hit 23.4% in April. The data released tomorrow will likely be far worse.

The adjusted definition of unemployed highlights the extent of economic pain felt across the country, even among the most privileged demographic groups. But, even this expanded definition reveals that this recession has magnified disparities that already existed. The adjusted unemployment rate for white male workers hits 18.6% but reached more than one-third of Latina workers (33.8%). More than one-fourth of black, Hispanic, and Asian workers were unemployed by this definition.

What is also true in looking at both the official and adjusted unemployment rates is that the historical black–white unemployment rate ratio of 2-to-1 has fallen dramatically. In April 2020, the ratio was closer to 1.3-to-1. One reason for this is that the COVID-19 shock that shuttered businesses has been so utterly enormous and rapid that the wave of layoffs has smashed deeper into the workforce and even swept away workers in historically privileged positions.

This analysis raises a few larger questions to watch in the coming months. Will the narrowing of the black–white unemployment gap persist as recovery begins in coming months? While the job losses occurred across the board to a large extent, will the job gains also occur across the board or will they be more concentrated among those groups with historical advantage over others? Conversely, will the extended pain from this recession linger on certain groups more than others?

To help the economy reverse course and support workers and their families through this time, policymakers need to extend the expanded unemployment insurance benefits until we get to the other side of the pandemic and until the labor market recovers. Policymakers also need to provide additional aid to state and local governments who most certainly will face drastic budget cuts, which will not only harm public-sector employment but also hamper the recovery.

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Why We Need to Keep Talking About George Floyd



I must begin by pointing out that this is really not what I wanted to be writing about. This is EconLog, for crying out loud; a virtual property of Econlib.  They don’t just let anyone natter on here, and for that reason, I would rather my introduction to the readers here be a message of freedom and hope. It was a mere few days ago that NASA launched a rocket built by SpaceX into space, ferrying humans to the International Space Station from American soil for the first time since 2011, signaling the successful culmination of a public-private partnership (sort of) that may one day see mankind colonize the stars.  But…I can’t engage you in a whimsical fantasy of our descendants enjoying Andorian ale in a bar on the joint colony at Titan.

Those of us tethered to the ground have been subject to pandemics, government overreach, massive loss of employment…and then there’s George Floyd. Those of us possessed of the masochism inherent in formal training in the social sciences have an obligation to review the world as it is, making data-driven observations, providing deep analysis of proximate causes, and generating recommendations aimed at making improvements and finding solutions. This last is the most difficult, because in matters involving race, I don’t necessarily know that here are any solutions outside of “we all need to be better.” Nor, in truth, am I an indifferent observer. As an African American myself, I have known too many George Floyds to remain indifferent.

It must be noted that the murder of George Floyd by Minneapolis Police officers, and the resultant riots raging across the American landscape aren’t entirely about race. As Reason’s Christian Britschgi has so ably observed, a combination of coronavirus lockdowns, joblessness, and other related factors combined to form a perfect soup that boiled over the day Derek Chauvin and his cohorts essentially strangled Floyd to death. This, however, is an outcome, not a cause. While this matter isn’t entirely about race, it’s still about racial relations in America. As ostensible thinkers in the classical liberal tradition, those of us dedicated to the natural rights of all men often shrink from in-depth discussion of such matters, when we may be the only parties left with any shred of moral authority to lead the charge.

So, we’re going to have that discussion, no matter how uncomfortable it might be. We’re going to discuss public choice and path dependencies. The ruinous War on Drugs and its unholy offspring, the carceral state, are also on the docket.  Institutional bias, uneven enforcement of laws that, by all right, shouldn’t even be laws…they’re on the table as well. The first step to solving a problem is admission that the problem exists, and we’re going to get to the root of it.  We’re going to analyze through the filters of economics, sociology, political science, history…because we must. To channel Acemoglu, history happens when critical junctures mate with institutional drift, giving birth to persistent paradigms.  We are, as the fires attest, at a critical juncture. To create new paradigms, we must facilitate changes within our institutions.

I will, of course, talk about other things. It is an honor for me to be here, and this isn’t the only issue that needs discussion. Nevertheless, this will be an ongoing conversation, and it is my hope that both author and readers benefit from it. The American apartheid system known as Jim Crow was relegated to the dustbins of history because men and women of good conscience did not bury their heads in the sand at a critical juncture in time, but the work is not yet done. It is up to us to find its completion, so that we can truly fulfill the obligations inherent in our credo “we hold these truths to be self-evident that all men are created equal.”



Tarnell Brown is an Atlanta based economist and public policy analyst.


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