Some remarks/replies. [When I Say NOTHING you should assume I agree with you! I have to talk lots about our differences, but we agree on much]

1) On inflation, I disagree. I have explained, long ago, why 4% inflation is best (I have an essay by that title)

I have held, for many decades that inflation below say 7% was better than zero inflation. Best around 4-5%. See:

http://patriceayme.wordpress.com/2010/05/20/2416/

The IMF under DSK subsequently adopted the same position
http://www.imf.org/external/pubs/ft/spn/2010/spn1003.pdf

My most advanced reasons are advanced, although I do include the basic one of the IMF: it gives a buffer.

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2) The apprenticeship system in Germany is FREE. Enough said. Differently from a college degree, it starts with, and gives a job, but it’s free EDUCATION, still. It’s certainly more educative than studying english, something one can do half drunk in a bar.

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3) slow groth is a fact. But growth of what? Slow growth will not be an option in the future; ask the Chinese who can’t breathe, watch the acid ocean rising… Major works lay ahead.***

4) the 82% deficit shrinking immediately after next year’s budget is IDIOTIC PROPAGANDA. According to my computation we are at 112% debt/GDP.

The 82% is just a lie the New York Times (and Krugman!) love. IMF uses my number. Primary USA deficit is 7%.
It it were in the Eurozone, the USA would be severely broken.

Foreseeable demand on USA fed gov is rather like 62 Trillion.

Revenue USA Fed 2012; 2.47 T. Deficit USA Fed: 1.33 T. Magically, this year, it’s supposed to collapse to .90 T…. hahaha… I mean what kind of foolishness is that? The gov is operating on FUMES, having already broken the debt ceiling of 16.4 T on January 4. And the CBO knows the deficit will collapse in 2013? With health care payments going through the roof, I mean, ceiling?

Just because California has reduced scholarity by a year?

It’s completely impossible to predict the deficit in 2013. Hey, suppose the USA DEFAULTS in a few weeks. Then what? Are interest rates going to stay rock bottom??

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5) Obama’s tax increases will not improve the situation, because they do not hit the plutocracy. Instead they hit salaried people, and will hit demand.I will broach the subject in my next essay, “Django, Obama Unchained”.

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6) Stiglitz and Krugman say they are “liberals” because it sounds good. So is the corrupt Clinton. In truth, too much of what they know, is that it sounds good.
PA

Patrice,

You’ve written some good things here. The graph of the Annual Inflation Rate is also useful to a point, but don’t get preoccupied with the idea that a higher rate of inflation is necessary for a better economy. It’s not true. It’s also not true that higher oil prices are necessary to stimulate more innovative approaches to alternative energy production. It could happen that way, but it doesn’t have to happen that way. (Despite the fact that orthodox economists are extremely fond of repeating the mantra that markets create the need for such innovation, governments and private entities can also support research and innovation.)

It’s a good thing that the Fed has succeeded in anchoring inflation expectations to a low number. One reason inflation expectations are currently low is that most people in the U.S. have the opposite expectations for real estate appreciation that they had 5 years ago. For the most part they don’t expect property prices to go up much over the next 5-10 years. Could this change? Of course, but for now expectations are low. Another couple of reasons are the amount of unused capacity in the economy and the higher than long-term rate of unemployment (including a rising structural rate of unemployment that cannot be reduced by politicians who continue to dumbly suggest the answer is for every child to get a college education. It may be true that every child should have the means available to them to achieve their full potential, but a college education is not the best way to accomplish that for everyone, neither is it a realistic goal.

In Germany, Europe’s most prosperous economy where there is currently a shortage of workers needed to fill positions in skilled trades, students are not pandered to with the illusion that they should all strive to become college-educated. Most students in Germany are either on a path towards achieving “Abitur” (an Francais, bacalaureat) from about age 10 which entitles them then to attend a university, or after earning what in America amounts to a middle school diploma (called in Germany “Mittlerer Reife”) at about age 15 or 16 can apply to attend a school to obtain technical training at no cost. This, to my knowledge does not exist in the U.S. It is one of the key reasons why the U.S. has so many underemployed young adults and older adults and why the U.S. is not more competitive in industries requiring skilled workers. The idea espoused by U.S. politicians year after year that every child should get a college education is a fiction intended to make good sound bytes.

It should come as no surprise that oil prices and oil price shocks can influence inflation expecations in the short term. Notice however they have a smaller effect on long-term inflation expectations. We can wish it were otherwise, just as we can wish that fuel prices at the pump would go down as fast when the oil prices goes down as they go up when the oil prices increase. Can we do anything about the fact that the average tanker’s cargo of oil gets traded 3 times in one day? I doubt it. Perhaps a merger between BP and Tesoro in CA that would give the combined company control over 50% of the state’s oil refining capacity could be more easily prevented.

Having said that low expectations for inflation are good, a brief word about the real economy. Slow growth appears to be the new normal for the forseeable future. But raising inflation won’t make the economy grow faster, it will only make the government debt more expensive to repay when Treasury bond prices rise. That would make a recovery that is dependent upon significant stimulus from the Fed (i.e. buying lots of assets like mortgage-backed securities to support housing prices) more fragile than it is now.

A better recipe for stimulating the economy can be read in Anatole Kaletsky’s ECONOCLAST article, International Herald Tribune Jan 4, 2013, “An agenda to neuter the doomsayers of the deficit, or American prosperity through deficit denial.”

begin quote
…U.S. deficits and debt, far from rising toward infinity are actually quite stable… …total debt is projected by the C.B.O. to stabilize at the equivalent of about 82% of gross domestic product from next year until 2018. And that is before any of the tax increases agreed to this week.
Taking into account roughly $600 billion in extra revenue to be raised under the deal approved this week, U.S. debt will stabilize at a significantly lower proportion of G.D.P. share and will probably do so my middle of this year. This helps explain why the panic about national bankruptcy in Washington does not seem to affect private investors, who happily lend money to the U.S. government at the lowest interest rates on record….
…Liberal economists, like Paul Krugman and Joseph E. Stiglitz, could explain this deficit denial as Keynesian stimulus. Conservatives could call it supply-side economics, as they did under President Ronald Reagan….
end quote

Jeff

On a more serious note, when one sees how such a puny event as 9/11 changed the USA (with the soi disant “patriot act”, among others…), one understands that the future is hard to predict. it did not take much to ennerve spastically the USA.

The French republic lost more than 3,000 soldiers, killed, a day, every day, during May-June 1940, but then the USA did not notice at all… Proportionally that would be as if 25,000 USA soldiers were killed, in combat, every day, for a month… And that does not count the civilian losses, which roughly doubles the count. By contrast the French noticed 9/11 very much, and Chirac was the first foreign head of state to visit New York, within a week: http://www.nytimes.com/2001/09/19/nyregion/19CND-RESC.html… Followed by Blair a few days later.

The indifference of the USA in 1939-1940 enabled the holocausts of WWII and Auschwitz. Now we are all more vigilant, but is that vigilant enough?
PA

As so often with the essays from the pen of Mr. Ayme they require a number of readings! So it was with this one. Not to be interpreted as me not finding the essay deeply interesting. (Apologies for the double negative!)

My contribution to the debate is to come from this position. That we are living through what in a few years will be seen as one of the great transitions in history. The challenge for millions of people is lifting one’s head up from the grind that is so much a factor of life to see both the unbelievable corruption in this world and the lies, the damn lies, that are so widely spread.

Of course, I’m in no better position to know the truth than the next man. But here’s how I see it.

Any politician promoting ‘growth’ as the way forward is promoting corruption and lies, and must know it. OK, perhaps ‘growth’ for the 1% that take 99% of the returns. But already this planet cannot support the 7 billion and rising who are alive today. We are not going to have sufficient food, clean water, arable land. Whoops! We do not have those now! Forget the future.

Nature is demonstrating today that man has interfered, unwittingly or not, with the relative stability of the biosphere to the point where prediction is uncertain.

The levels of debt across the world, for governments and persons, are also unsustainable. When we take cash from the bank’s ATM where is it truly coming from? Bet you that cash doesn’t belong to that bank! What is that cash truly worth? How can it be worth anything when it is really someone’s instrument of debt, wrapped up in someone else’s instrument of debt, ad infinitum?

Even when it all collapses, as it surely must, the strongest governments will be brought to their knees with only their power to raise taxes to save them from the rest of the financial industry.

No, this is the end of time in terms of the last 50 years. There will be a future, of course, but our grandchildren will scratch their heads for a long time before they understand, if ever, what us lot have been up to!

Sorry, rambled on somewhat!

As exemplified by Sweden which threw out 21% of its civil servants, and then devalued the Krone by 20%… Sweden is also definitively more balmy than Iceland… although they have an extensive tree planting program there… They too devalued massively, and are not out of the woodworks.

Contrarily to Sweden, with only 37% debt to GDP. Thanks to its smaller debt, Sweden has also started heavy infrastructure programs…

Whereas Iceland, from ‘ICESAVE‘, owes a huge amount relative to its GDP (6 billions or so) to Britain and company… I am definitively more sanguine about Sweden than Iceland.
PA

I am investigating whether it is possible to emigrate to Iceland ……..

As for topics, there are only three worth discussing:

- the coming war (or wars)
- the death of the planet
- the growth of fascism in Europe in parallel with its decline