“No-one saw this coming?” Balderdash!

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The widely believed proposition that this financial crisis was “a tsunami that no-one saw coming”, and that could not have been predicted, has been given the lie to by an excellent survey of economic models by Dirk Bezemer, a Professor of Economics at the University of Groningen in the Netherlands.

Bezemer did an extensive survey of research by economists or financial market commentators, looking for papers that met four criteria:

“Only analysts were included who:

  1. provide some account on how they arrived at their conclusions.
  2. went beyond predicting a real estate crisis, also making the link to real-sector recessionary implications, including an analytical account of those links.
  3. the actual prediction must have been made by the analyst and available in the public domain, rather than being asserted by others.
  4. the prediction had to have some timing attached to it.”

On that basis, Bezemer found eleven researchers who qualified:

Researcher Role Forecast Date
Dean Baker, US Co-director, Center for Economic and Policy Research 2006
Wynne Godley, US Distinguished Scholar, Levy Economics Institute of Bard College 2007
Fred Harrison, UK Economic Commentator 2005
Michael Hudson, US Professor, University of Missouri 2006
Eric Janszen, US Investor & iTulip commentator 2007
Stephen Keen, Australia Associate Professor, University of Western Sydney 2006
Jakob Brøchner Madsen & Jens Kjaer Sørensen, Denmark Professor and Graduate Student, Copenhagen University 2006
Kurt Richebächer, US Private consultant and investment newsletter writer 2006
Nouriel Roubini, US Professor, New York University 2006
Peter Schiff, US Stock Broker, investment adviser and commentator 2007
Robert Shiller, US Professor, Yale University 2006

Having identified eleven researchers who did “see it coming”, Bezemer then looked for the common elements in the way that these researchers analysed the economy. He argued that if there were common elements—and if these differed from the approach taken by the overwhelming majority of economists, who didn’t have a clue that a crisis was approaching—then the only useful economic models would be ones that included these common elements.

He identified four common elements:

  1. “a concern with financial assets as distinct from real-sector assets,
  2. with the credit flows that finance both forms of wealth,
  3. with the debt growth accompanying growth in financial wealth, and
  4. with the accounting relation between the financial and real economy.”

A non-economist might look at these elements in puzzlement: surely all economic models include these factors?

Actually, no. Most macroeconomic models lack these features. Bezemer gives the topical example of the OECD’s “small global forecasting” model, which makes forecasts for the global economy that are then disaggregated to generate predictions for individual countries—like the ones touted recently as indicating that Australia will avoid a serious recession.

He notes that this OECD model includes monetary and financial variables, however these are not taken from data, but are instead derived from theoretical assumptions about the relationship between “real” variables—such as “the gap between actual output and potential output”—and financial variables. As Bezemer notes, in the OECD’s model:

“There are no credit flows, asset prices or increasing net worth driving a borrowing boom, nor interest payment indicating growing debt burdens, and no balance sheet stock and flow variables that would reflect all this.”

How come? Because standard “neoclassical” economic models assume that the financial system is like lubricating oil in an engine—it enables the “real economy” to work smoothly, but has no driving effect—and that the real economy is a miracle machine that always returns to a state of steady growth, and never generates any pollution—like a car engine that, once you take your foot off the accelerator or brake, always returns to a steady 3,000 revs per minute, and simply pumps pure water into the atmosphere.

The common elements in the models developed by the Gang of Eleven that Bezemer identified are that they see finance as more akin to petrol than oil—without it, your “real economy” engine revs not at 3,000 rpm, but zero—which can contain large doses of impurities as well as hydrocarbons. The engine itself is seen as a rather more typical gas-guzzler that pumps not merely water and carbon dioxide, but sometimes unhealthy amounts of carbon monoxide as well.

That’s encapsulated in the flowchart that Bezemer copied from a paper by Michael Hudson, shown below. Without credit from the Finance sector, producer/employers don’t get the finance needed to run their factories and hire workers; but with credit they accumulate debt that has to be serviced from the cash flows those businesses generate.

The component left out of the above flowchart—but incorporated in all the models praised by Bezemer for seeing the crisis coming—is that the finance system can fund not merely “good” real economy action but “bad” speculation on financial assets and real estate as well. This also leads to debt, but unlike the lending to finance production, it doesn’t add to the economy’s capacity to service that debt.

The growth in thus unproductive debt was the common element identified by Bezemer’s “Gang of Eleven”, which was why we most definitely did see “It” coming.

I’ll finish this analogy-laden article with a sideswipe at an inappropriate one—that this crisis is “like a tsunami”. Though that image captures the suddenness and devastating nature of the crisis, it is wrong not merely once but twice in characterizing how it came about.

Firstly, unlike a tsunami, this crisis was predictable by economists who take what Bezemer characterized as a “Flow-of-fund or accounting” approach. Secondly, a tsunami is actually caused by a huge shift in the planet’s tectonic plates, and the shift itself relieves the tension that caused the tsunami in the first place: in a sense, the tsunami resets the system to a tranquil state.

This financial tsunami was caused by the bursting of asset price bubbles driven by excessive levels of debt, but the bursting of those asset bubbles hasn’t eliminated the debt—far from it. Instead, economic performance for the next decade or more will be driven by the private sector’s attempts to reduce its debt levels, and this will depress economic activity for years. Unlike a tsunami, a debt crisis is a wave of destruction that keeps on rolling unless the debt is deliberately eliminated.

Everything that is being done by policy makers around the world is instead trying to restart private borrowing. A better analogy is therefore not a tsunami but a drug overdose—and our “neoclassical” economic doctors are attempting to bring the patient back to health by administering more of the same drug.

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254 Responses to “No-one saw this coming?” Balderdash!

  1. reason says:

    And in deciding such tax arbitrage is a good thing, you are deciding low tax is in essence a good thing (I thought you guys were the Left Libertarians) rather than a political decision.

  2. Bill says:

    More heartening discussion from the MSM: John Kay, using a quite enlightened analogy of ‘modularity’ from a really useful empirical field – engineering – to accuse neoclassical economics of ‘lunacy’ http://www.businessspectator.com.au/bs.nsf/Article/Economic-lunacy-pd20090722-U7CQ9?OpenDocument&src=sph

  3. whereisthetruth says:


    Your discussion of the differences between ‘State Capitalism’ and ‘State Socialism’ is interesting and thought provoking.

    Not being an economist, I am endeavouring to think through the underlying causes for us being in the mess we are in now, and (for the first time in my life) challenging my beliefs about the dogmas of capitalism that I have adhered to for most of my life. Thanks to people like Steve Keen and others such as yourself for assisting me.

    I guess that one persistant thought that keeps coming to me is that ‘in theory’ any economic system can be employed to benefit society. What is required is a near universal sense of good will toward others as a priority over self interest and it doesn’t matter whether you have a socialist, communist, capitalist, feudalist or any other kind of system. If people in general sought the best for others as for themselves, distribution of what ever wealth was created would happen as a matter of course. If the essential motivation of mankind was the common good, then there really wouldn’t need to be any regulating government at all. Wherever there was a need, effort would be employed to supply a solution, and so it would go.

    But in the ‘real world’ we are faced with a situation where the sense of good will to others is subordinate to self-interest. And in a world where threats exist and scarcity dominates, there is a natural tendency to try to shore up one’s advantages as a hedge against these. It is how one manages the balance between the universally recognised importance of social good will and the tendency (and right) of individuals and collecive groups to look after their own interests that is the dilemma. Bottom line – isn’t this what government is supposed to do?

    It seems to me that a system that disperses the political power and economic freedom as broadly as possible rather than centralising it, in spite of the apparent theoretical benefits of efficiency afforded by the latter, is a more effective method of limiting the dangers associated with ‘self-interest first’. Yet, as you rightly point out, eventually – regardless of the ‘system’, ingenuity is employed by some individuals to find ways to ‘stack the deck’ in their favour. I tend to think that it is this reality that is the greatest economic threat, not the ‘system’ itself.

    So, it would seem that, as history seems to show, any political or economic system has a finite life-cycle, regardless of it’s nature. To be sure, some seem to last longer than others (eg. the Soviet system lasted a mere 70 years), but eventually the system is overwhelmed by a build up of corrupting influences to the point of collapse. Then, after varying degrees of social and economic upheaval, people are reduced to such misery that they are forced to think collectively again in order to survive, and a new system emerges. And so it goes.

    Perhaps that is where Western civilization is at, and the consequences are pretty much innevitable. Unfortunately, because the ‘western’ system is so huge in size and reach, and the lead-up to this crisis is so great, the fallout may be staggeringly enormous also.

    Do I make sense, or am I just wasting everyone’s time thinking this all through ‘out loud’? I know I am thinking more philosophically than ‘economically’.

  4. spadijer89 says:

    Firstly, on the issue of “a businesses viability depends on the people who runs it” convincing. The point here is that in any business there is a head – for that head to remain there, or rather for the business to be viable, the right decisions have to be made. You argue “you can hire people to run it – many fortunes are now distributed ownership of many businesses”. This is my precise point: the right people have to be hired to ensure that viability. It involves a decision, which may affect the continuity and viability of that business, which involves PRODUCTION or output (whether that should be a skill is irrelevant to our discussion: it provides employment and a decision). The right decision was (probably) made. Identifying people skills is, well, a skill. Nevertheless, the point stands: often these people (like the Donald) own lots of land in the first place and have a monopoly (due to the sites he or she owns) which enables him to take the back seat. Business and land monopoly are closely correlated (just ask the agrifarmers).

    Secondly, “plant and machinery are also inherited”….well, they generally depreciate (implying you have to ACTUALLY put them into use or sell them, before they become utterly worthless). Land does not (just as Harry Hyams). Land inflates as population growth and production occurs. The difference is the patents and machinery do not, generally, violate the quid pro quo rule: they are doing things for people (although the patents less so). Nevertheless, the point remains: most inheritances is LAND related and there is a clear difference between land and capital (one is mobile the other isn’t, one appreciate, the other doesn’t, one cannot be withhold from the production, the other rarely so).

    Thirdly, erm, I thought that taxing THE ENTIRE INCREASE in land value, was obvious that it would not be passed on to others. Especially, if you adopt the approach where the is a 100% land tax *at the point of sale*. My evidence is stated above: Various German colonies, logic etc. Anyways, I recommend Winston Churchill’s speech on this topic: http://www.progress.org/banneker/chur.html
    What is to note here is this: land monopoly is a bigger problem than other forms of monopoly, which at least provide goods and services.

    Fourthly, yes, I do not see the problem if people outside the zones work or put things inside the zone area. I would regard that as a qualified success – people want economic freedom. Although the legislation with drafts the zone would need to be specific (as it did in the UK and US) that people who work AND live in the zones are exempt from taxing these taxes, but must pay X. Although areas outside the zones generally do suffer a mild decline as activity is diverted into the zone: again this would not be the case in the NT or ACT (the outer regions in these areas are not densely occupied). Simply make the zone bigger. Heh. Plus, that is the point of enterprise zones – they are started in POORER areas – so the areas around the poor areas are not very rich – thank god they are evading paying crippling taxes.

    Finally, yes, you should not generalise on people’s ideology – suffice, yes I do think low taxes (actually, no taxes) which penalise hard work and savings are good. I recommend Fred Harrison’s “Ricardo’s Law” – it shows how taxes on production (e.g. income taxes) are diverted into building infrastructure and government services which enrich the asset rich (through windfall gains). Thus, Harrison calls the UK the divided Kingdom between London and Scotland, leaving the rich richer but the poor poorer. And, of course, most (all?) poor people do not own land.

  5. Lyonwiss says:

    Compare science which gave us the Apollo 11 moon landing 40 years ago with economics which is giving us the global finance crisis 40 years later. Yet no one wants to do science (with low university entrance scores) and everyone wants to do law or finance (much higher university entrance scores). Go figure that out!

  6. reason says:

    Sorry Steve (spadijer89),
    no sale. Your attitude to my problems is to ignore them, or hope they go away (without any evidence as far as I can see), and your attitude to inherited power stinks as far as I am concerned.

    I know that the Chicago boys did some studies suggesting that inherited wealth disappated in a couple of generations – but that was when top marginal rates were MUCH higher. Recent evidence suggests that inequality is increasing, and intergenerational mobility is decreasing.

    It goes back to what I was saying about doing the serious work to work out a careful transition path, addressing possible problems and allowing the political process to put people in control.

    You may not think you are the tool of the plutocracy, but you may well be.

  7. reason says:

    Just to clarify, that doesn’t mean I don’t think LVT is a good idea – I do, and for lots of the reasons you do. It is just that
    a. I think it is hard to introduce (local convexity if you like)
    b. It is not a panacea.

  8. reason says:

    And your suggestion of ACT & NT as test cases, as I understand it, sounds like a local version of Bemuda and the Caymen Islands.

  9. reason says:

    And as a last point –
    in my case you started with someone who was favourably disposed, and couldn’t convince him. So how did you do with neutrals and sceptics?

  10. Philip says:


    I think that the vast majority of people in any society are interested in engaging in good will towards each other. The problems lie, not with individual people, but collectively at the institutional level.

    In Australia (state capitalism), our economy is mostly run by utterly psychopathic and unaccountable institutions (capitalist firms). There are essentially two problems with them: (1) they are not democratic, that is, they are not accountable internally (to workers) or externally (to society) and lack any bottom-up formal democratic mechanisms like voting and (2) don’t function according to market principles.

    Enter the utility of neoclassical economists. While they preach the concepts of equilibrium, rational expectations, cost internalization, competition, etc within the university classroom, the economy functions in a state of disequilibrium, irrational expectations, cost externalization, oligopoly formation backed by monopolistic intellectual property rights, etc.

    You’re certainly right about the lack of need for government if the economy was self-regulating and sustainable. Capitalism results in ‘big’ government for two primary reasons: (1) to protect the minority of the opulent against the majority and (2) to protect the rest of society from the rich through the use of regulations and social welfare. Under capitalism, rights are never given – they are always won and have to be maintained by common struggle lest they be taken away.

    If we actually had a democratically accountable and sustainable economy that could be run in the common interest, then government could be made ‘smaller’ and less invasive which I think is an end in itself.

    We are taught that capitalism is a good economy because it either is in equilibrium or is very close to it – this is the core concept of neoclassical economic theory. This means that supply and demand equal each other and thus both parties to a contract benefit equally.

    Unfortunately there is an overwhelming weakness with the idea of equilibrium and its associated concepts. It can only exist in an economy where time does not exist, all consumers have exactly the same preference (everyone are clones) and can know the future perfectly like gods, the economy is in a state of perfect competition, all costs are internalized, zero transaction costs, and so on.

    Clearly no economy conforms to the above conditions, and thus a static state of equilibrium is non-existent. In reality, capitalist economies are in a constant process of disequilibrium and thus quite unstable (bubbles and GFC). This is where the great con in economic theory is brought in: assumptions don’t matter.

    Economists need to utter this phrase constantly because it is ovbious that the conditions that is needed for equilbrium don’t exist (perhaps on some alien world in another dimension). Otherwise, it immediately becomes obvious that capitalism can’t possibly be an efficient economic system.

    The result of all this is that the outcomes under capitalism of income and wealth are totally distorted (this needs no explanation), all assets and commodities are mispriced, no two parties to a contract gain equally, bubbles continually form and burst, and so on.

    This, in a nutshell, is why neoclassical economic theory needs to die a quick death.

    Ralph Nader sums it up well: the only reason why capitalism is still around is because socialism is always around to bail it out when it self-destructs.


    Can you provide a short summary of what Prout economics is? If it’s interesting, perhaps I could read some more on it.


    I think (though I could be wrong) that there has been a gradual flight from the arts and sciences into business and finance over the last couple of decades due to students seeing education not as an end in itself but rather a means to get richer.

  11. tommyt says:

    Hi Phillip, thanks for your ‘post’ it is very enlightening!What reaslly concerns me though is Australia’s own brand of ‘capitalism’!
    As Australians are loathe to change anything politically and due to their collective lack of ‘true polictical (ideological)perspective’,what may yet come into the fore here is (to me)quite ugly for all!other nations have by and large had their cleansing moment in history french revolution;russian revolution;Fascism in germany and italy imperialism in Africa;BUT Australia! nothing but an historical void of colonialism and complete lack of national awakening and with, as you describe,the capitalist economy ‘dis- equilibrium-ates’I wonder how this nation might ‘explode’! No not ‘hanson ism’! (joke)BUT social melt down Argentina like melt down!This scenario is what frightens me more(socially).Your word “psycopathic” is very apt!the shower scene from “PSYCHO”comes to mind for ‘oz’!! NO EQUILIBRIUM, SOCIALLY OR ECONOMICALLY!Cheers

  12. Bullturnedbear says:

    Hi Tommyt,

    The two party preferred system in Australia provides political stability that doesn’t exist in most other countries.

    As such a revolution would need to follow a very severe set of circumstances.

    Given that I believe we are heading for a very severe economic collapse. I will not rule out a revolution.

    On balance though, I’d bet that Australia’s
    1. Easy going attitude.
    2. Large land area.
    3. Access to (free) natural beauty.
    4. Ability to grow our own food.
    Will mean that we are better off than most and will avoid a revolution during this cycle.

    Who can say though?

  13. MMitchell says:


    I am not convinced of your belief that everyone is community minded with good will towards each other. This might be possible, but I think our culture does not engender these traits. They might appear to be superficially, but as the old saying goes, judge a man by his actions not his words, and the actions of many today do not suggest community mindedness except as the minimum needed for social acceptance (I do not want to single anyone out to demonstrate this). In an earlier post I listed a set of authors, most of whom believe that our institutions have been co-opted for the ends of a powerful minority. In this sense I tend to agree with Whereisthetruth, that over time this type of manipulation is inevitable. However, I believe it might be able to be somewhat constrained by cultural values. A culture based on self-interest such as ours has increasing become over the past 100 years or so is the anti-thesis of this. When people get no, or very little, recognition for acting morally and ethically (among their peers and social institutions), while others are lauded for dubious, but ostentatious, achievements which serve mainly themselves, but are build on community support and resources then I think there is something seriously, pathologically wrong.

    In regard to Prout I am still learning myself. Aspects which appeal to me are local decision making and restrictions on the size of private organisations which are determined by the communities they serve. I am a member of some community organisations, and believe the success of these and many other examples, such as the CWA, the CFA, SES etc are a testiment that these types of organisations can work, although I think they would work better if local funds were provided to them directly with mostly local control, rather than going to governments as taxation and then them being run by remote bureaucrats.

    One aspect I definitely disagree with is their support for a world government. I have yet to see any convincing arguments that such governments can be democratic, and even if they were, should a world majority be able to dictate to tribes in the Amazon or elsewhere what their laws will be? I think the whole idea of world government is fraught with danger. Look at the corruption in our representative systems just at state and national levels.

    There is a discussion of Prout at the link below (another thing that bothers me is that little information is available for free – you have to buy their books)



    One risk we do face in Australia is our dependence on oil. Given the vast distances between communities and the low fertility of our soil our transport needs are much greater than most of Europe and Asia, yet we emulate their systems and lifestyles.

  14. spadijer89 says:


    I did not ignore your problem – that is, that LVT is difficult to introduce and that it is a panacea – both which are gross representations of what I said. So let me spell it out to you once and for all: FIRSTLY AND FOREMOSTLY I am *more* concerned with the major source of inequality, even poverty – land – which LVT would address: homelessness due to sky rocketing rents, a mortgage which takes a lifetime to repay and the fact most Australian’s are burdened with debt, despite the fact in one small suburb of Melbourne there are over 1000 vacant properties (hardly a holiday home) and almost 10 million vacant homes in Australia. Of course, a 100% tax would mean most, if not all, these vacant homes will go onto the market place, depressing our grossly unaffordable land values. We do not disagree on this issue, but I see this as a major priority than stealing from people who inherit a business which provides the community with goods and services.

    Thus, reason, you actually do not have an . In contrast, my argument is based on urgency (I see a lack of affordable housing as a serious problem, more serious than the purported inequality of James Packer inheriting a family business – I am more concerned about the thousands of acres he inherited which could provide housing – at least the business he has is providing a SERVICE, a quid pro quo), and efficiency (LVT does not create grave distortions as other taxes) and economic theory (there you go again, wanting to tax capital and labour, over land – I noticed you completely ignored by point that there is a DIFFERENCE between land and capital – my argument was that capital needs to be replenished to survive, land merely rises as labour and capital advance themselves).

    So, no, reason, it is you who has ignored the fundamental difference between (1) a business, which provides exchange and PRODUCTION, i.e. a quid pro quo and an unearned increment: as I said, businesses, owned by a family or not, will survive as long as the right business decisions are made in the first place (whether that is hiring the right people providing employment, making the right decisions, providing quality goods and services etc). (2) You also ignored the fact that most monopoly businesses are backed on assets, which are underpinned by location, location location, i.e. land values. I mean, for pete’s sake, Telsco has all the right properties in the right business locations (even holding land idle to squeeze out competitors) and Telstra’s assets are mostly land: See Terry Dwyer, “Land Values and Rents in Australia”, as well as Telstra’s balance sheets and annual reports.
    In contrast, you are advocating inefficiency (that is, you tax things which also provide a service). You have not shown me how a person inheriting a business is inequitable. On paper of course it is – if I have a huge business worth alot and you don’t, well yes, its inequitable but justified: because, well, DUH, THE BUSINESS PERSON IS THE PERSON WHO PRODUCES THE FOOD FOR MILLIONS OF PEOPLE TO EAT, WHO MARKET THE GENIUSES AND SHOES WE WANT ETC. Let’s all TAX KELLOGS TO DEATH! Nevertheless, what enables them to have this power, which creates OUTPUT, is access to assets and ability to make the RIGHT decisions INTO THE FUTURE. LVT makes sure that the land market can be accessed by the labour and capital markets (in case these assets are withdrawn from supply for competitive purposes, as with Telsco). You target the side effects, not the cause of inequality. Worse things have beset society than people inheriting capital goods.

    Thirdly, you say that:
    “I know that the Chicago boys did some studies suggesting that inherited wealth disappated in a couple of generations – but that was when top marginal rates were MUCH higher. Recent evidence suggests that inequality is increasing, and intergenerational mobility is decreasing.

    There you go again: pitting equality and efficiency. Nevertheless, (1) name the papers you refer to – give me a link to them and (2) explain to me how they avoid correlation equals causation arguments: what if there was a property tax, or a capital gains tax which influenced their finding?

    Thus, reason, it is you who the plutocract as you do not what gives rise to the most extreme form of inequality; land. I did give you evidence (of why other taxes are inequitable), but let me start again then by NAMING books which pay be of interest to you and I recommend you read:

    Stillwell, Frank “Who Gets What?: Analysing Economic Inequality in Australia”.

    Stilwell FJB and Jordan K 2005, ‘Land Tax in Australia: Principles, Problems and Policies’ in Henry Georges Legacy in Economic Thought, ed. John Laurent, Edward Elgar, UK pp. 216242.

    Harrison, Fred “The Silver Bullet”

    – Clearly links land monopoly and inequality in Africa and parts of Russia.

    Harrison, Fred “Ricardo’s Law”.

    – Shows how income tax is in fact a regressive tax, as I pointed out earlier – it makes the rich richer – taxing labour and capital to fund government services, which merely increase the assets of the asset rich, through windfall gains (higher rents, better services etc).Uhuh, reason your “income redistribution” basically bills the poor thrice (first through higher rents or mortgages due to the windfalls of government services, second through higher direct and indirect taxes and higher wages due to higher rents will so produce equality).

    I am not judging your intentions, but I am certainly questioning the outcomes of the theft-like policies you are advocating.

    Finally, as for the transition path, I told you – single tax enterprise zones (the best argument against them was people OUTSIDE the zones would want to take part in them – wow, no kidding – that is the idea – resources come into the poorer areas). Test the idea and see how it works. The best way to introduce a scheme is to see how successfully it works in practice. If you have any understanding of Australian constitutional arrangements, you would know that the territories, while having self-government, can be override Federal government laws. You will also know that the Federal government is the de facto landowner of the territories: there cannot be any political opposition to the idea, particularly if it also replaces all territory taxes , including council rates, and the fact Canberra’s tenure arrangements. And, of course, run down areas in Sydney can only benefits from a single tax zone, provided they are big and plentiful throughout the country.

  15. MMitchell says:

    Someone just sent me this link. At first glance it doesn’t seem relevant to economics, but apart form highlighting problems far more serious than GFCs it finishes with references to Malthus and Adam Smith. It seems we can blame some of this problem on economists and their belief in never ending growth.


  16. Glenn Condell says:


    very interesting work from Dirk Bezemer. Several I’d not heard of, but but I think he has missed a few. Sorry if others above have already noted this, but I haven’t time to read 190 comments!

    If the select GFC Hall of Fame is open to all reasonable predictions – ie, not just limited to the profession of economics and including analyses which emphasise aspects other than the housing bubble, such as the dangers of derivatives or the failure of regulation – then it should include many if not most of the following :

    Gillian Tett


    Janet Tavakoli


    Michael Lewitt


    Doug Noland


    Steve, he has a ‘Minsky column’ –


    John Hussman


    Hussman too has a Minsky moment in this ‘to do’ list for addressing the crisis:


    Kevin Phillips

    published ‘Arrogant Capital’ 13 years ago. Many predictions came true:


    William White


    I also seem to recall people like Stephen Roach (Morgan Stanley Asia) , Max Keiser and Karl Denninger (traders and bloggers) publicly expressing some queasiness at the trajectory of events well before they spiralled out of control.

    And what about poor old F. William Engdahl, whose mutterings in July 2004 seem to me earlier than most:


    I wrote this comment on a thread here (‘I do not know anyone who predicted this course of events’ Dec 10/08):

    “the earliest I remember seeing was from F William Engdahl. I have a piece of his dated July 2004 – it’s called ‘Is a USA Economic collapse due in 2005?’ His timing was a little out, but still.

    He said then ‘The rise in home prices has been driven by cheap interest rates and banks rushing to lend with abandon. Because two semi-government agencies, the Federal National Mortgage Association, known as FannieMae, and the Government National Mortgage Association, or GinnieMae buy up the bank‘s mortgage contracts, taking the risk from the local banks, so the local lending bank has less pressure to guarantee that he lends to low-risk credit-worthy families likely to repay the loan.

    The US Congress has passed new laws making it even easier for families to buy homes with no penny of their own money required initially as ‘down payment’ This has meant a huge rise in mortgage loans to economically marginal or risky families. The number of such risky or „sub-prime“ mortgage loans has risen by 70% this year alone, and now makes up 18% of all US mortgages.’

    I would also mention Nassim Taleb of Black Swan fame. He warned about Fanny Mae explicitly in mid-2006, possibly having read Mr Engdahl.

    A bit disturbing that an utterly non-economic person such as myself could have emailed one of my brothers in late 06 about the concerns I had after reading all these things, but Glenn Stevens was apparently innocent of any such knowledge.”

    And probably still is.

    Nice to be able to add a few females to the list. It’s still a select little band you belong to Steve, but where you had a cricket team, you now have an AFL side (with reserves bench).

    Understandable that Mr Bezemer uses the things that unite you lot to draw conclusions, but what’s more intersting to me is what divides you. For example I was introdcued to both yourself and Peter Schiff on George Negus’s show a while ago. You were on the same page on many things but reading you both ever since it seems to me that while you’ve both been correct, you’ve reached your positions from opposing directions and in fact have quite different expectations for the future (deflation vs inflataion basically). He also has a peculiarly American style of laissez-faire approach to labour relations, role of govt (health care etc) which I’m fairly sure would be at odds with your ideas.

    I’d love to win Lotto and invite all Hall of Famers to a big, televised chinwag on the crisis (it’s my impression most of the econ punditocracy is still drawn from the swelling ranks of the GFC Hall of Infamy) – how we got here sure, but more importantly how we get out. Talking thru those differences that would I’m sure prove most interesting, and useful.

  17. reason says:


    Now you have totally lost it. You come across as a fanatic.

    Taxation is not theft, and inherited wealth is something completely different from earned income. Putting it to work should logically reward the creater but not obviously the lucky owner. Yes it depreciates, but if it produces more than cost to replace then it accumulates.

    I agree with you 100% about the value of LVT but it seems to me, you are are more keen on the single tax theory than on the desireable outcomes.

  18. reason says:


    Just a point – why are you attacking me, I was just pointing out your POLITICAL irrelevance, if you don’t address the issues I raised. Read the David Brin piece.

  19. spadijer89 says:

    Dear Reason,

    You got to do alot better than that, let’s examine your premises one by one.

    Premise 1: “Now you have totally lost it. You come across as a fanatic”.

    By “fanatic” you mean produced an ? The “fanatic” label only applies if I were churning out blind metaphysics, which I did not do. Rather, I acknowledged there are alternatives and used empirical data in order to challenge your rather trivial views (ffs, I ever quoted academic papers on the topic); I said I look at land FIRST AND FOREMOST, but not entirely in my economic analysis (e.g. I said I support the real doctrines approach toward banking). I’d think after the GFC that would be the conventional view. (I also noticed you failed to answer my request relating to listing out the papers and sources where you argued higher marginal tax rates produce reduce inequality, which questions your academic integrity altogether). Thus, it seems to me you are the fanatic who is concerned with egalitarian intentions and not outcomes. Your first premise must therefore be dismissed.

    Premise 2: “Taxation is not theft”
    Um, prove to me that taxation is not theft – that is, someone taking away what I create with my flesh and bones. Did I consent INDIVIDUALLY (not through the ballot box) to paying the tax from the value I directly created (e.g. my labour, my work)? No. Thus, its theft through force: if I do not pay a tax, I get sent to prison. Land values (as opposed to home and property values), in contrast, is derived from the value from the broader community (population growth and locational access). Premise 2 must also be dismissed.

    Premise 3: “inherited wealth is something completely different from earned income”
    Not in all instances. James Packer, for example, still has to make the right decisions as his father did to maintain the viability of the business. My concern, once again, is the factor of production which is inherited: I do not have many qualms about inherited capital (e.g. the casinos), but I do have many qualms about land (and other land based assets) and the monopoly privilege and location that entails.

    Premise 4: “Putting it to work should logically reward the creater but not obviously the lucky owner”
    Most, albeit not all, people who inherit a business often have seen their parent work the business, create the business and even in their youth work for a business. Donald Trump, for example, did not create his multimillion dollar empire. His grandfather did. As a child he worked with his father, developed the skills of the trade and then went off applied them and created a billion dollar empire. Owners still make decisions. They still have to hire the right people, providing employment.

    Premise 5: “I agree with you 100% about the value of LVT but it seems to me, you are are more keen on the single tax theory than on the desireable outcomes”

    Yes and no. Site rental taxes, I believe, have delivered desirable outcomes than the status quo in all instances it has been implemented. And yes, TRUE, I do am not concerned with good intentions as you are, but with good OUTCOMES. For too long people from the left have judged policies based on intentions and not outcomes. Hence, your erroneously and ignorant views on income tax and other redistribution measures, which you forget are deposited in higher land values for the rich (roads are built, schools and facilities serviced, all while landlords get rich in their sleep, due to the windfall gains they get).

    Premise 6: “Why are you attacking me…I was just pointing out your POLITICAL irrelevance”

    I am attacking you precisely because you do not have an – I listed dozens of approaches that can be taken (focusing on who, what, where and why). In particular, I responded by saying that the Liberal Party, which has more Georgists than the Labour Party (aka. the Oz Landlord Party), would implement LVT, as it has historically. If you look at British Politics (during the 1980s with enterprise zones), or German Politics (the New York Times link I gave you which discusses how German colonies and councils adopted a single tax of 6%), or Rogerism (which required swift radical reform) it was the quasi-conservatives, perhaps classical libs, who implemented LVT. Thus, I told you what gets results: HARD PROOFS AND EMPIRICAL EVIDENCE by committed parties, not dominated by landlords. If the zones work they will be adopted. Firsthand experience prevails (remember conservatism is about WHAT WORKS AND HAS BEEN PROVED TO WORK), and hence why various conservative parties in German colonies also adopted the idea thereafter. I said in Australia the first place to implement the idea would be in the ACT *Australian Capital Territory*, right next to Parliament itself.

    So I addressed the issues you raised, if you got other ideas feel free to post them.

    Frankly, Reason, I think you are being unreasonable and ignoring what has been said on the topic on some detail.

    Premise 7: “Read the David Brin piece”
    I have to go cut my toe nails.

  20. spadijer89 says:

    Opps –

    *By “fanatic” you mean produced an actual ?

  21. gaday says:

    Spdijer89 and reason.
    The point scoring between you undermines the content of what you are both presenting!
    Neither of you are “right” you both have a perspective and if this is not so, then neither of you are the intellectuals that you claim.

    Let’s get back to meaningful discussion ..please!

  22. reason says:

    “Hence, your erroneously and ignorant views on income tax and other redistribution measures”

    Your an arrogant ponce. That is no way to win political support.

  23. reason says:

    I agree – but I was not trying to score, I was asking him to convince me. But he just ignored or belittled my points.

  24. reason says:

    And he doesn’t EVEN know what my views on income tax and redistribution are.

  25. Philip says:

    Ok, time for both of you to log off.

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