Thursday, August 8, 2019

How To Prevent--And Cure--The Next (Or Any) Recession Or Depression (Updated)

With a recession likely coming later this year or next year at the latest, it is important to realize the causes so such recessions can be cured or even prevented in the first place.  Enter Rodger Malcolm Mitchell, the guru of Monetary Sovereignty, penned this important and timely article.

He notes that every single recession and virtually every depression in history has been preceded by a cut in federal deficit spending, or worse, a federal surplus.  That is not coincidence, since cutting the federal deficit slows the growth of the money supply, and surpluses actually shrink the money supply, all else being equal.  (Federal deficit spending = spending new dollars into existence.)  A growing economy requires a growing supply of money, and when the money supply fails to keep up with the demand for money for too long, the economy reacts by shrinking.  Thus, barring a truly massive increase in private debt (i.e. more money lent into existence by banks), deficit cuts ultimately result in recessions and surpluses result in depressions or at least really long and deep recessions.  And recessions and depressions can only be cured by increasing the money supply dramatically, typically by increasing federal deficit spending.  That's it.

And this makes perfect sense, since GDP is literally nothing more than a money measure.  To wit, GDP = Federal Spending + Nonfederal Spending + Net Exports.  Kinda hard to grow that without sufficiently growing the money supply as well.

Everything else is basically a sideshow, but that said, sometimes sideshows can be significant too.  Take the current Trump Trade War, for example.  This lose-lose, negative-sum game would have been recessionary by now had it not been for the massive growth in the federal deficit occurring at the same time, and eventually it may still cause the next recession in spite of the deficit.  But if the Republicans decide to cut federal spending because of manufactured deficit hysteria, that will cause a far worse recession or depression, on top of the consequences of the trade war.  And Wall Street recklessness can indeed cause financial crises, which of course can have knock-on effects on Main Street as well, as we have seen numerous times already.  Though even that is most likely due to the fact that stock market crashes--or any other asset price crash--will shrink the money supply, all else being equal.  And that is especially true when there is a "credit crunch" where banks suddenly refuse to lend as much as before, as we have seen in the wake of both the 1929 and 2008 stock market crashes (but not 1987).

What about oil and gasoline prices?  True, 10 out of the past 11 recessions have been preceded by sharp increases in fuel prices.  And that makes sense in a country in which oil is the lifeblood of the economy.  But even this is more nuanced than one may think.  Neither increases in interest rates alone nor increases in fuel prices alone seem to be enough to cause a recession by themselves unless such increases are truly extreme, which is very rare.  But the simultaneous combination of significantly large increases in both (that is, a sharp hike in the Fed Funds Rate by more than 2.00-2.50% AND at least a doubling of crude oil prices within a year or two) appears to be sufficient to cause a recession.  Of course, given how rare it is for recessions to not be preceded by cuts in deficit spending, it is not clear if sufficient deficit spending can be enough to prevent an oil-induced recession while interest rates are also hiked to prevent or cure inflation.  But at the very least, increasing federal deficits will cure such recessions once the inflation dragon is defeated.

The Fed recently cut the Fed Funds Rate by 0.25 percentage points (25 basis points), while noting that there would not likely be any more cuts this year.  And the stock market lurched downward upon that announcement, and lurched down again the following day thanks to Trump's further escalation of the trade war, and yet again following China's predictable retaliation.  Cutting interest rates is basically like pushing on a string, and in any case it may be too late to fully prevent the next recession that is largely induced by Trump's trade war.

Overall, we know what causes virtually all recessions and depressions.  That means we also know how to prevent and cure them as well.  That is, when recession hits, or ideally before it hits, we should increase federal deficit spending, or at least refrain from cutting it.  It's really not rocket science.

Sunday, August 4, 2019

Enough Is Enough Already! (Yet Again)

Another day, another horrible mass shooting.  This time, it was in fact TWO mass shootings within 24 hours:  one in El Paso, Texas, followed by another in Dayton, Ohio, and so far at least the first one (if not the second as well) appeared to be fueled by racism, xenophobia, and white nationalism (much like the one at the garlic festival in Gilroy, California just days prior).  These two shootings are among the deadliest in this country's history, but in context with the numerous other recent mass shootings it otherwise seems disturbingly banal.  Seems that mass shootings in general have become an almost daily occurrence in recent years, and school shootings in particular an almost weekly occurrence--in the USA at least.  So far there have been 251 mass shootings in 2019 alone.   But the rest of the industrialized world doesn't really seem to have this kind of problem, even in countries where racism, xenophobia, anti-Semitism and hate groups in general are rife.  Why is that?  Well, there's always....


America is the land of 300 million guns, and combined with a culture that is crazier and more violent than most other "developed" countries, and much more extreme inequality, it is a very lethal combination indeed.  And some states, most notably Florida and Texas, but also Pennsylvania as well, have particularly lax gun laws compared to other states.  Of course, the biggest elephant in the room is the fact that at least 98% of mass shooters are MEN.  Thanks to the patriarchy and the sort of "toxic masculinity" that it creates, combined with the above factors, too many men end up resorting to violence.  Like the Iron Maiden song says, "a briefcase, a lunch, and a man on the edge".  With a gun. I mean, what could possibly go wrong, right?

There should be no doubt at this point that something needs to be done.  However, we do not believe that banning all guns for everyone, or adopting British or European-style gun laws, is the solution, as the genie is already out of the bottle, and there is also that whole Constitution thingy as well.  Thus, the TSAP recommends that the following measures be taken:

  1. Bring back a new and improved 1994 assault-weapons ban yesterday, this time with more teeth.  This time, include all rapid-fire devices and all magazines with more than ten rounds in the ban as well as the previously-banned types of semi-automatic rifles and their knockoffs.
  2. Remove the 20-year ban on gun violence research, yesterday. 
  3. End the gun-show loophole and implement universal background checks, yesterday.
  4. Put a significant excise tax on all bullets/ammo, like Chris Rock recommended. (Seriously)
  5. Treat ammo sales the same as gun sales.  Or better yet, treat bullets like Sudafed:  must show ID, limit on the number that one can buy, the number bought would be recorded, and if you do buy too many, you will be investigated.
  6. Pass a "one gun a month" law at the federal level.  And consider perhaps putting a limit on the number of guns that an individual can own at a given time, except for antiques/relics/curios.
  7. Require reporting of lost or stolen guns.
  8. Regulate firearms like other consumer products in terms of health and safety standards--currently such standards are nonexistent.
  9. Improve enforcement of existing gun laws, which tend not to be enforced very well these days, and improve state reporting of prohibited persons to NICS.  Also, prohibit anyone on the terrorism watch list from buying any guns, period--and consider hate groups to be domestic terrorists as well.
  10. Consider a massive gun buyback program, one that pays significantly more than what the guns are worth on the street.  Voluntary for any still-legal weapons, mandatory for any newly-banned ones. 
  11. And last but not least, improve our woefully-inadequate mental healthcare system.
Of course, to truly solve our gun violence problem would require a fundamental overhaul and transformation of our society, which the TSAP clearly supports.  We need to go from being what Riane Eisler calls a "dominator" society to more of a "partnership" society, as the latter kind is far less violent overall.   But in the meantime, the aforementioned recommendations would go a long way towards taking the dangerous edge off of the problem. 

And like other cases of domestic terrorism, these were most likely due to a combination of toxic masculinity, easy access to deadly weapons (especially the obligatory semi-automatic AR-15, AK-47, or their knockoffs), and a virulent racism and xenophobia fueled by the so-called "alt-right" (read: white supremacists, KKK, and neo-Nazis) as well as the Trump administration that nods, winks, and looks the other way (when they aren't stoking the fire themselves like Trump himself apparently had done recently).  Regardless of the motive, the first two factors are absolutely essential for virtually all mass shootings.   To be clear, these atrocities are, even more disturbingly, NOT isolated incidents or flukes, but the tip of a very large iceberg of hate and violence that appears to be getting worse in recent years.

I don't know about you, but my favorite part of the Second Amendment is where it says "well-regulated". Too bad so many Republican Congresscritters who are bought and paid for by the NRA can't seem to read the first half of the freaking sentence.  Oh, and nevermind that when it was written, guns at that time fired at most one round per minute, not 600+ per minute like so many of today's killing machines.  Not like the gun lobby and their lackeys really do nuance.