Tom Tomorrow's Cartoon On The Austerity Debate

The debate about austerity and deficit reduction has worked its way into the popular culture.  Grover Norquist, who coined the "starve the beast" concept, and Paul Ryan, whose budget implements "starve the beast", have come under the influence of austerity aliens.  Paul Krugman unsuccessfully attempts to ward off the alien influence.  The alien's austerity strategy was designed to destroy to enable earthlings to destroy themselves so that they did not have to pay for a war against the earthlings.

A Familiar Story At JP Morgan Chase

This article puts a human face on the $2 billion trading loss at JP Morgan.  Top management got warnings from internal risk managers but they were ignored.  The risk manager in London was replaced by the head of the investment unit that was making the trades after he became alarmed by the risks.  The takeover of Washington Mutual during the financial crisis was also a factor.  JP Morgan inherited toxic securities issued by Washington Mutual that were losing value and affecting JP Morgan's performance.  Top management was encouraged to take more risky bets in order to cover the losses from Washington Mutual securities.

The NY Fed is responsible for supervising JP Morgan.  It was asleep at the wheel, just as it was prior to the financial crisis. Jamie Dimon, JP Morgan's CEO, is on the board of directors of the NY Fed.  He was very close to Timothy Geithner, who is now the US Secretary of The Treasury, when he was the President of the NY Federal Reserve. It is pretty clear that the Fed is unable to supervise risk at the Wall Street banks.

Rebekah Brooks Faces Criminal Charges From Hacking Scandal

The hacking scandal in the UK, that sunk Rupert Murdoch's tabloid, has implicated News Corporation's CEO and her husband.  Criminal charges have been brought against them and several associates.  The couple was very close to Cameron, when he was in the opposition, and after he became Prime Minister.  Ms Brooks was a star in the tabloid industry.  She held top positions in The Sun before rising to the top of News Corporation.  The tabloids play an important role in British politics.  They influence public opinion,  and politicians  curry their favor.  It is rumored that Tony Blair was influenced by Rupert Murdoch when he decided to join the US in the invasion of Iraq. Blair was supposedly offered conditional  support from Murdoch's tabloid

The Structural Versus Cyclical Debate Revisited

This article provides a good response to the conservative argument that we have a structural downturn in the business cycle, and, therefore, it does not require government intervention.  Those who argue that the downturn is structural claim that the structural changes in the economy have lowered the potential output of the economy.  If that is the case, the natural rate of unemployment is higher than it would otherwise be.  If the decline in output is structural, the unemployment rate is close to where it should be.

The same folks who believe that the economy is in a structural downturn worry about the potential for inflation if government attempts to stimulate the economy with monetary or fiscal policy.  If inflation is the fear, the Fed can raise interest rates from where they are now close to zero.  If we have a demand problem, and we do nothing, there is a huge downside. We will have high unemployment that could lead to structural problems in the future.  If we are wrong, the Fed has weapons to deal with the mistake by raising interest rates.

Greek Stock Market Worse Than US Stock Market In Great Depression

This graph illustrates the decline in Greek stock market compared to US Stock declines in 1929 Depression.   The slopes are comparable with the exception of the uptick that is taking place in US stock prices more recently.  A lot of folks are predicting Greek exit from the eurozone in the near term.  We will have to see what happens but it looks bad.

Krugman Makes The Case For Stronger Bank Regulation

Free marketers and libertarians oppose government regulations.  They argue that markets a self regulated and that government is a threat to freedom.  This article by Krugman makes the case for stronger regulation of banks that are granted special privleges and protections by government.  It provides a good introduction to the post that follows.

F. Hayec's Critque Of Conservativism As It Is Manifested In The US

The following quote is from F. Hayec's preface in The Road To Serfdom.  His book has often been used by conservatives to attack many aspects of the welfare state.  He believed that it provided a slippry slope to socialism and totalitarianism.  Hayec was also a critic of some forms of conservatism. His critque of conservatism applies very well to the major thrusts of conservatism as it is practiced in the US.

" Conservatism, though a necessary element in any stable society, is not a social program; in its paternalistic, nationalistic, and power adding tendencies it is oftern closer to socialism rather than to true liberalism; and with its traditionalistic. anti-intellectual, and often mystical propensities it will never, except in periods of disillusionment, appeal to the young and all others who believe that some changes are needed to make the world a better place.


A conservative movement by its very nature is bound to be a defender of established privlege and to lean on the power of government for the protection of privlege. The essence of the liberal position, however, is the denial of all prvilege, if privlige is understood in its proper and original meaning of the state granting and protecting rights to some which are not available on equal terms to others"

Hayec was not a supporter of the New Deal, but he would not be a supporter of the GOP which appeals to the perverse form of conservative that he criticized.  He used liberalism in the traditional way that it was used by liberals in England who opposed the granting of privlege to elites.  There is a tradition within US liberalism to also oppose the granting of privlege and the protection of privlege held by elites.  Many liberal programs have been developed for that purpose. 

It is understandable that Hayec would have been concerned about the misuse of state power that he witnessed in the 1930's.  However, he would also have opposed oligarchy and plutocracy.  One of the major purposes of government is to provide a countervailing power against entities that seek and obtain privlege. That is the major objection that conservatives in the US have against the state.  They want the state to insure privlege, and to increase the power of private entities that have attained privlege.  Given the power of large business enterprises there is no alternative to the state as a countervailing power.  The function of democracy is to assure that the state is an instrument that supports freedom and which opposes the misuse of private power.  Conservatives in the US seek to control the democratic process so that it can use the state for its own purposes.  They are a greater threat to freedom than a democratically elected government. Democracy is the enemy of hierarchy.  Conservatism as it is practiced in the US is the defender of hierarchy.  Our problem in the US is to do our best to make it work as it supposed to work.