Market power, lack of competition or opportunity squeezing employment and investment these are underlying cause of lacklustre growth.
David Kay Johnston makes a very persuasive argument that public policy policing is doing more harm than good

"Governments are helping big industries by diminishing competition, providing abundant cheap credit for speculation rather than investment and failing to rein in price gouging. In turn, these policies produce a growing concentration of income and wealth at the top while the vast majority struggle with falling wages, flat incomes, job insecurity and a shrinking slice of investment assets."

With central banks running out of room to act to effectively sustain economic growth, the more enlightened in the profession are coming out with stronger arguments for a more activist role for government investment.

So Brad DeLong joining the choir with his important voice is good news.  Drawing on more context than we could dream of his post titled "Needed: More Government, More Government Debt, Less Worry" will definitely help move the needle of public conversation in the right direction.

Importantly, from our perspective, in his introductory remark that:

"I believe that little adjustment to one’s view of the proper level of 21st-century public debt of *reserve currency-issuing sovereigns with exorbitant privilege* is called for because of systemic risk considerations."

In other words, due to the fragility of the private banking sector, governments need to start treating their budgets the way central banks treat their balance sheets. For example, investing in technology to increase productivity- that is the road to sustainable growth. It's like no one lived thru or benefited from the 90's! Instead, the 2000's left our political leaders stricken with economic amnesia regarding the impact information technology had in sustaining growth in employment and incomes.  Instead crippling public discourse with false narratives fed them by a private banking sector willing to be the only driver of economic activity.

His conclusions are also consistent with the functional finance perspective on managing the economy. In his first 2 concluding points DeLong takes as a given the necessarily increased role sovereign currency governments will figure in managing money.  We would preface with given the limitations of bank created money in managing sustainable growth without producing boom and bust investment cycles. Which he raps into his final point:

"3. With prudent regulation—i.e., the effective limitation of the banking sector’s ability to write unhedged puts on the currency—the power major sovereigns possess to tax the financial sector via financial repression provides sufficient insurance against an adverse preference shock to the desire for government debt.

The first two of these conclusions appear to me to be close to rock solid. The third is, I think, considerably less secure."

Ok so he's identified the possibility but remains skeptical-who can disagree. Given the economic ignorance of politicians we can't either but we're working on it.

Taxes and subsidies provide important positive and negative incentives for businesses and individuals to act. Perhaps nowhere more visibly than in the increasing requirement in the areas of energy and the environment. There are many examples of the positive forms incentives to build power generation in the form of solar, wind and biomass. Similarly, the purchase and installation of electric automobiles, LED lighting and building insulation or cycle schemes.  

Still to be fully developed are the negative incentives. While the market for trading in carbon credits, so called cap and trade, these plans are full of exemptions and lack of a floor price that don't incentivise and are hardly punitive to emitters.  We advocate for the development of a carbon tax and dividend schemes, similar to that proposed by Senator Chris Van Hollen’s Healthy Climate and Family Security Act of 2014 , for producers and users to receive the benefits directly of movements to low carbon activity while being tax neutral.

So it is that with extraordinary interest that we see this story from PRI's environmental news magazine, Living On Earth, in their story titled, "Harvesting "Himalayan Viagra".

Reporting on a "Tibetan fungus being sold on the Chinese medicine market as an aphrodisiac, bringing new income and problems to rural villages on the Tibetan plateau. Anthropologist Geoff Childs tells host Steve Curwood that he’s found one village that is managing the resource sustainably."


The traditional ethnic resident of Nubri, a valley in Gurkha district of Nepal, have a religious and cultural tradition of living in harmony with the land. However, local authorities additional action to guarantee the sustainable farming of this supposed medicine.  Childs found, "In terms of the village regulations the first one that I just mentioned is the exclusion of all outsiders. The second one is they've got a designated starting date, and they arrive at that by looking at the snow melt, looking at the conditions in the alpine pasture and figuring out what's going to be the likely time when it's best to gather it. And so for a couple weeks prior to the official starting date, every adult in the village has to check in four times daily to the village meetinghouse to prove that you're not collecting early. A third thing that they do is they tax it. For the first member of your household, the tax is very low; it's 100 rupees or approximately $1 dollar. For every additional household member, it's 4,500 rupees, so about $50 dollars, and they gather that tax and use it for communal purposes."

A great story and example of using incentives to find sustainable solutions. The transcript and audio download of the interview can be found here.

"I should like the see the State embark on various novel and adventuresome experiments…I am of opinion that the State should increasingly assume the position of the reserve employer of labour."
                     
                                                                                                                                              -Winston Churchill,

Good news! Another prominent voice in monetary policy Minneapolis Fed President Narayana Kocherlakota concludes government investment, what he generally calls debt, is desirable. For the central bank achieve its 2% inflation target and provide space for the Fed to raise rates without effecting growth.

Speaking recently in Germany, Kocherlakota notes in light of the continued necessity for interest rates to remain low-"There is an enhanced risk that the Federal Open Market Committee (FOMC) will undershoot its maximum employment and 2 percent inflation objectives. Fiscal policymakers can mitigate this risk by choosing to maintain higher levels of public debt".

This is consistent with our recognition that without governments or banks creating money the economy is limited in its prospects. We're keen to highlight these remarks as they run counter to the narrative supported by most of our elected officials.

Now if only these monetary policy makers would begin proposing optimal measures we'll make real progress. Until then we will starting with investment in energy efficiency with return on investment and full employment policies to support wages.

Article in Vox EU titled   Why growth in finance is a drag on the real economy provides further evidence to what the functional finance framework makes clear.  When the finance sector extracts money from the real economy the impact is similar to a tax on the broader economy decreasing the circulation of funds and overall activity. Making public sector support and investment in high risk, reward industries more important than ever to supporting the drivers of long term growth.

The summary to the article reads:

"A booming financial sector means economic growth. Or does it? This column presents new evidence showing that when the financial sector grows more quickly, productivity tends to grow disproportionately slower in industries with either lower asset tangibility or in industries with higher research and development intensity. It turns out that financial booms are not, in general, growth-enhancing."

Extracting rents, modern finances primary role, results in lower less money available for investment reducing the technological progress important to increasing living standards, solving solution issues and long term sustainable growth. 

As highlighted previously, instead of investing for growth managers support stock valuations with massive buyback schemes to benefit investors.  Similarly, investors want a tangible asset they can resell with low risk associated with moon shot technologies a low priority despite the myths put out there by Silicon Valley.  No surprise then that in the case of "industries with higher research and development intensity"  the fruits of which termed over a longer time period see reduced investment despite their potential positive impact. 

James K Galbraith's 9 myths about the Greek crisis published in Politico is all you need to read to understand the drama unfolding in Greece this weekend.

Concluding with the below points relating to this weekends vote and potential fallout and historical significance:

"8. A “Yes” vote will save Europe. “Yes” would mean more austerity and social destruction, and the government            that implements it cannot last long. The one that follows will not be led by Alexis Tsipras and Yanis Varoufakis             the last leaders, perhaps anywhere in Europe, of an authentic pro-European left. If they fall, the anti-Europeans           will come next, possibly including ultra-right elements such as the Greek Nazi party, Golden Dawn. And the                 anti-European fire will spread, to France, the UK and Spain, among other countries."

It is important to recall the extreme debt burden the allies levied on post WWI Germany responsible for the rise of the Nazi's. Now the European Commission, ECB and IMF are filling this role fanning the flames of Euro skepticism manufacturing a broad political undercurrent with nationalist tendencies with dissent focused toward their efforts.

In recognition of this Galbraith correctly counters the narrative produced by the Troika:

"9. A “No” vote will destroy Europe. In fact, only the “No” can save Greece – and by saving Greece, save Europe. A         "No” means that the Greek people will not bend, that their government will not fall, and that the creditors                       need, finally, to come to terms with the failures of European policy so far. Negotiations can then resume – or                 more correctly, proper negotiations can then start. This is vital, if Europe is to be saved. If there ever was a                     moment when the United States should speak for decency and democratic values – as well as our national                   interest – it is right now."

History may mark this weekend as a turning point for the European experiment.  From the Functional Finance perspective, that the next Greece, whether Ukraine, Italy, Spain, et al are not currently lobbying for greater development in the area of fiscal union only means once the Greek crisis is resolved it will migrate in their direction.  Federal redistribution of the benefits of sovereign money, such as exists between US states, is a reality without which similar type results would persist as witnessed by recent developments in Puerto Rico.

In the absence of these federal institutions, consistent with what we know about modern fiat money, we propose a hybrid solution to distribute money, without debt created and distributed by the ECB, based on a % of GDP or population as a benefit of the union for state democratic institutions to invest via the budget process. The exact amount may be consistent with inflation targets or projections or full employment requirements. This solution would also alleviate central bank fears over the zero lower bound and controlling private sector money creation more effectively.

The alternative continued depression, mass unemployment, devolution of Europe leading to possible conflict as witnessed over the last 5 years is no real solution.  Nations within the Euro should be the benefactors, not the hostages, of money created with a key stroke.