The Economy, How Bad Is It?
The economy is so bad:
That I got a pre-declined credit card in the mail.
I ordered a burger at McDonalds and the kid behind the counter asked, “Can you afford fries with that?”
That CEO’s are now playing miniature golf.
If the bank returns your check marked “Insufficient Funds,” you call them and ask if they meant you or them.
Hot Wheels and Matchbox stocks are trading higher than GM.
McDonalds is selling the 1/4 ouncer.
Parents in Beverly Hills have fired their nannies and learnt their children’s names.
T truckload of Americans was caught sneaking into Mexico.
Dick Cheney took his stockbroker hunting.
The Mafia is laying off judges.
Exxon-Mobil laid off 25 Congressmen.
And finally
Congress says they are looking into this Bernard Madoff scandal.
Oh, great!! The guy who made $50 Billion disappear is being investigated by the people who made $1.5 Trillion disappear!
In the spirit of “we all need a laugh”, this list of jokes is doing the rounds in the USA:
The economy is so bad that:
- I got a pre-declined credit card in the mail.
- I ordered a burger at McDonalds and the kid behind the counter asked, “Can you afford fries with that?”
- CEO’s are now playing miniature golf.
- If the bank returns your check marked “Insufficient Funds,” you call them and ask if they meant you or them.
- Hot Wheels and Matchbox stocks are trading higher than GM.
- McDonalds is selling the 1/4 ouncer.
- Parents in Beverly Hills have fired their nannies and learnt their children’s names.
- A truckload of Americans was caught sneaking into Mexico.
- Dick Cheney took his stockbroker hunting.
- The Mafia is laying off judges.
- Exxon-Mobil laid off 25 Congressmen.
And finally one I don’t agree with, but in the interests of completeness:
- Congress says they are looking into this Bernard Madoff scandal.
- Oh, great!! The guy who made $50 Billion disappear is being investigated by the people who made $1.5 Trillion disappear!
“Boom boom”, as they used to say in Vaudeville.
October 8th, 2009 at 10:37 pm
[...] This post was mentioned on Twitter by Vaidyanathan – India and John Hacking. John Hacking said: The Economy, How Bad Is It?: The Economy, How Bad Is It? The economy is so bad: That I got a pre-declined credi.. http://bit.ly/QUZDS [...]
October 8th, 2009 at 11:40 pm
good one steve,
not sure if its past your bedtime,
just saw proffessor lacy hunt being interviewed on lateline,
unfortunately the link hasnt been posted to the lateline website as yet, so i cant oblige in that respect, but worth a look later
http://www.abc.net.au/lateline/
would be good to get your take on the interview, mentioned debt deflation and debt to gdp ratios,
unusual, since most economists i see interviewed on the australian msm dont have such phrases in their venacula, obviously besides your good self.
nearly spilt my coco
particularly interested in his reference to the government expenditure multiplyer tending towards zero, and thus government stimulus being ineffective over the long run, over a period of time, and crowding out,
neo classical nonsense perhaps??
would be good to get your impressions, perhaps the chartilists could butt in as well, since i figure they would have something to say about crowding out
October 8th, 2009 at 11:52 pm
Hi Steve,
Would you be able to weigh in on the great inflation versus deflation debate? I recently sold out of my gold (SGX) and oil (WPL) stocks to buy an inverse US ETF in anticipation of deflation indicated in 10 yr US bonds, collapsing consumer credit etc etc. However commodities are still going and the stock market is back at highs!
Seriously though, am not soliciting financial advice, but trying to square the ledger on how currently both the inflationists and deflationists seem to be right.
My key question therefore, can we have asset deflation with commodity inflation?
Great blog, love your work?
PS. Am also renting waiting for the housing bust…still waiting…
October 9th, 2009 at 1:33 am
[...] Excerpt from: The Economy, How Bad Is It? | Steve Keen's Debtwatch [...]
October 9th, 2009 at 2:07 am
[...] the joke of the day via Steve Keen:Ten reasons the economy is so bad (I suggest this as a top ten for David Letterman?):#10: I got a [...]
October 9th, 2009 at 2:09 am
Love the jokes. It keeps my sanity.
Steve, what’s your take on the interest rate say in the next 5 to 10 years?
And if you think we are heading for deflation much further down the track, what do you think RBA will do?
What’s our chances of becoming like Japan? What kind of time frame would it be?
October 9th, 2009 at 3:32 am
Hi Steve,
In the next few years (short of a huge change in govt. policies worldwide), what are the odds that lots of other countries will break off from following the States (economically, etc.)? Brown, Rudd and Harper are the first three that come to mind.
October 9th, 2009 at 5:39 am
Steve,
Chris Martenson has made a post over at zerohedge (also available on his site for subscribers)
http://www.zerohedge.com/article/guest-post-sound-one-hand-clapping-what-deflationists-may-be-missing
“Yet everything just keeps perking along. What gives?
The answer, I believe, requires us to ask a Zen-like question along the lines of “what is the sound of one hand clapping?” That question is, “If nobody recognizes a defaulted debt on their balance sheet, does it exist?”
October 9th, 2009 at 8:00 am
I read that piece, Gibber, and strongly disagree with the conclusion. You need the willingness to borrow as well as the willingness to lend.
The willingness to lend took a hit when LIBOR jumped and the cost of funds went up. This could have taken down the banks like in the Great Depression. But the governments flooded the banks with money, interbank lending rates are low, and banks have plenty of reserves to boot.
But you also need a willingness to borrow. That willingness took a big hit as people saw the asset bubbles for what they are (Minksy’s “revulsion” phase), and as unemployment spiked. The governments have not jumped on this, as it would require debt-forgiveness, low unemployment, and confidence. It is a harder problem to solve.
By focusing on the banks’ ability to lend, the governments are only solving half the transaction, and that wont get credit growth started again.
It’s true we don’t have the rapid deflation of the Great Depression as 1/3 of the banks went bankrupt in a brief period of time. That was on the lending side, which is fine now; we are seeing the mild deflation of people rolling debts over at slower rates, or trying to pay down debts. That is necessarily a much slower process than mass debt-default. It’s a quiet deflation. No sudden collapse in M3 as Martensen pointed out, but a slow period of credit decline. That decline is a direct drag on demand, which drags down profits, which drags down employment, which drags down credit growth. So no collapse, but a self-reinforcing slowing. Japan has been stuck in this loop for 20 years. Higher asset prices are not the order of the day, IMO.
October 9th, 2009 at 8:29 am
mahaish, the Lacy Hunt interview is now here:
http://www.abc.net.au/lateline/content/2008/s2709019.htm
Well worth watching.
October 9th, 2009 at 9:13 am
Bankster,
Now that is really worth taking in. Thanks for the referral it is an excellent assessment (in my opinion) Love the summary about risk taking I believe that risk adversion is almost as risky however careful investemnt (without debt) is going to be the way to go. Forget housing as an investment (consumes wealth) look at business enterprise (already established) and inject cash (no borrowings ) and develop I believe the returns will be there over a long period but they will be better than alternatives for risk ventures are mainly just a gamble.
Thanks again great stuff
October 9th, 2009 at 9:14 am
To Alan Gresley,
I have just left a response to your post #127 from the last blog “The RBA gt it wrong again”.
October 9th, 2009 at 9:35 am
I asked an economist for her phone number….and she gave me an estimate.
An economist is a trained professional paid to guess wrong about the economy. An econometrician is a trained professional paid to use computers to guess wrong about the economy.
To an economist, real life is a special case.
October 9th, 2009 at 9:42 am
Definitely second that gaday. Pardon the ego-aspect of this, but it was like listening to me with a mild American accent.
He wasn’t listed in Bezemer’s 12 who saw this coming, but that may have been an oversight. I am going to refer his name to Dirk to see whether there should have been 13 in the list.
October 9th, 2009 at 9:49 am
Mind you, there’s lots of stuff toward the 2/3rds point (about 8-9 minutes in) which will annoy the Chartalists–it’s a fairly straight “crowding out” argument. But the opening focus on private debt and and ditto an approaching Zombie Economy at the end, is very solid.
October 9th, 2009 at 11:16 am
Check this link for some interesting thoughts from Robert Fisk:
http://www.independent.co.uk/opinion/commentators/fisk/robert-fisk-a-financial-revolution-with-profound-political-implications-1798712.html
October 9th, 2009 at 11:17 am
Steve, what’s your take on compulsory superannuation contributions given each month to the finance services industry who use those contributions to earn fees, purchase their own shares and thus create demand for those shares to lure in other investors.
October 9th, 2009 at 11:26 am
Well put mfo! Yes though formed with good intentions, the superannuation scheme has ended up adding to the Ponzi scheme rather than generating real investment. The 1987 stock market crash here can be seen as partly a factor of this: in 1973, 30% of super money was going into the stock market; by 1987 it was 70%. This is possibly why our bubble and crash back then was bigger than the USA’s.
Super should be literally investing–financing productive ventures, even if some fail–rather than speculating.
October 9th, 2009 at 1:08 pm
A great article:
The Nobel prize for economics may need its own bailout
Facing a similar crisis of legitimacy, the prize needs to prove it is much more than an award for stockmarket speculators.
“The economics award is usually the last of the Nobel prizes to be announced. Correctly so, for it was also the last to be created – and strictly speaking is not even a real Nobel prize.”
“Peter Nobel, great-grandnephew of the founder and human rights activist, famously argued that Alfred Nobel would not have approved of such a prize, which he termed “a PR coup by economists to improve their reputation … most often awarded to stockmarket speculators”.”
“But the Nobel prize in economics may now be as much in need of wider legitimacy as the economics profession itself. It will be interesting to see if this is reflected on Monday, when the current year’s winner is announced.”
…
Steve Keen!
October 9th, 2009 at 3:19 pm
Here’s another gobal economic joke for you. You be the judge:
On yet another recent “secret” trip to China, Treasury Secretary Tim Geithner was arrested in a Beijing restautant when the staff discovered his govt. issued credit card had expired. Geithner tried to declare he had diplomatic immunity. Then he realized he wasn’t a diplomat. He was then quoted as saying, do you know who I am? The staff replied, yes we do. But we try not to think about it. Especially while eating.
After some rapid calls to the U.S. Embassy and Obama (on his ultracool Blackberry), the staff gave up and basically said in Mandarin, you’ll never eat in this town again.
And you wonder why they don’t trust us with the economy….
October 9th, 2009 at 3:41 pm
mfo – post #17
“Steve, what’s your take on compulsory superannuation contributions given each month to the finance services industry who use those contributions to earn fees, purchase their own shares and thus create demand for those shares to lure in other investors.”
Earns fees ? … ??
Should they do it for free?
I agree there is a structural problem that many superannuation funds HAVE to invest new funds according to the mandate provided for the fund. There comes a time when the best asset to invest in is cash, and unfortunately superannuation can prohibited in doing that by their mandate, thus have to compulsory acquire something.. anything to ensure compliance of that mandate.
And I can see it easily fueling a ponzi scheme, can easily see it fall trap to a minksy moment. game theory says it’d be hard for them not to, to be honest.
But all in all it is a strucutal/mechanical flaw of the superannuation concept, not that the concept itself is flawed.
The seeds of the GFC first rose to my attention when tracking monetary supply. between 1998-2005, monetary supply grew 60%, compared to ‘government figures’ (always overstated) of GDP at 25%. Cash was compensated by CPI figures which are always understated.
Correct calibration of this would have seen higher interest rates and less debt.
In one of the few endorsements of government intervention, I personally would like to see superannuations have a government imposed mandate where the level cash holdings are linked to an increase in monetary supply and/or the current account deficit.
One of the beneficial premises of ‘forced savings’ was to stop going offshore cash markets. It doesn’t do much good to have these funds tied up in equity in the secondary market instead.
October 9th, 2009 at 3:54 pm
RSJ and Gibber
I read the piece and I am now confused –
RSJ says “I read that piece, Gibber, and strongly disagree with the conclusion.”
What do you think the conclusion was?
The ‘part’ I found as getting at Martensons’s conclusion was this
“Which means I think we are in a bizarre hybrid world, where deflation should be the order of the day but it currently is not because its impacts are being held in abeyance by the simple expedient of pretending the losses do not exist”
Even in the great depression did everything deflate? My guess (and please point it out if I am wrong) would be no, some things probably got more expensive.
I don’t think this piece incompatible with Steve analysis…
October 9th, 2009 at 7:47 pm
hi steve, others
re lacy hunt on lateline
i’m curious to get an understanding of his position that the government expenditure multiplyer tending towards zero over a period of time, and hence i take it, the usefullness of running indefinate budget deficits,
i thought there was only a political or ideological limit,
others feel free to comment
October 9th, 2009 at 8:03 pm
“Definitely second that gaday. Pardon the ego-aspect of this, but it was like listening to me with a mild American accent”
why go for cheap american copy , when they can get the real thing ay steve
October 9th, 2009 at 8:33 pm
Mahaish,
My support of Steve’s theories is where I am at, it makes sense to me. I am no academic, never had the chance to study – a fact not an excuse.-we in Aus tend to think home grown is unreal compared to ‘overseas’ Steve’s analysis was and still is REAL The more peolple throughout the World that agree with Steve-agree with our thoughts-the more we have as an influence for change-for this is not really about correcting something for ourselves. It is about getting it RIGHT for the future!
I applaud Hunt because his thinking supports Steve’s not because Steve’s thinking supported his. Hunt obviously did not proclaim his thoughts by exposure that is however I do not believe that he is a copy cat.
You are right in that Steve is original in the 13 however I am sure Steve will and has said there is a silent amount of unanounced same theorists out there. If Steve has by his courage of conviction brought these people to the fore then let’s support them for the better economical model.
We need that model for the future and as I’ve said it before probably it will not happen in our life time.
Debate -expansion of thought-creates incredible possibilities whereas rote learning inhibits growth and restricts society from developing humanity.
Let’s encourage the development of “open mindness” and see the real progression that unrestricted minds can contribute.
Economic freedom represents unlimited freedom for mankind providing the model is correct without destruction.
Freedom or or all excesses are great however in excess they are destruction within.
October 9th, 2009 at 9:17 pm
no argument with you qaday,
the comment was made very much in jest,
i didnt mean to run down professor hunt,
infact looking at his cv, its good to have someone of his stature and regard, highlighting these issues
October 9th, 2009 at 9:34 pm
mahaish
Many economists talk nonsense, including neo-classicals and chartalists, because they have infinite liquidity, infinite budget deficits, infinite credit, infinite resources etc. I haven’t worked out a formal proof yet that their propositions would lead to internal logical contradictions. But it shouldn’t be difficult. Many of those economists have not worked out yet what “no such thing as free lunch” really means, which is equivalent to “no such thing as a perpetual motion machine” in physics.
Credit and government budget deficits are different aspects of bring forward consumption: only a time shift. Government spends the taxpayer’s money. The more government spends the less the taxpayer has to spend. Printing money is only an illusion, leading to general inflation but no additional resources. It does not have to be a “zero sum game”, in the sense that government spending could possibly stimulate the economy more effectively than private spending. But empirical data (as cited by Lacy Hunt) do not support this idea. In fact, government spending in the former Soviet Union provides the most powerful counter-example, which is a favorite of the the Austrian-libertarian school.
My personal view is that neither the government nor the individual is best for everything for all times. The world is much too complex for that. The task is to find out exactly when government intervention is needed and when it is not needed. The religious wars between different schools have prevent progress in economic understanding for decades.
October 10th, 2009 at 2:14 am
Lyonwiss,
There are pitfalls in your argument. Economics is no physics or thermodynamics but if you want to carry the analogy further here it is – If you include General Relativity in your study (which you have to) there is no energy conservation in the usual sense. There is just a conservation of the “Energy-Momentum tensor” ‘locally’ and
the gravitational field can have negative energy density with other fields having positive energy density. This is actually a non-technical (!) way of saying things and you can refer to Steven Weinberg’s texts on this.
So any proof that you want to give about Chartalism is bound to lead you to nowhere!
Infinite deficit, infinite credit are simple techniques to dismiss chartalism and no chartalist would argue for “infinite deficits” I think Soviet Union had problems because it used a currency board.
At any rate, Chartalism is far from any religion. Being obessed with government debt seems to be like some religions saying have physical relations only for procreation.
Will be happy to see a “formal proof” to disprove Chartalism and to show the logical contradictions. (Hint: It is stock-flow consistent at every step).
October 10th, 2009 at 7:30 am
Lyonwiss@27
“Many economists talk nonsense, including neo-classicals and chartalists, because they have infinite liquidity, infinite budget deficits, infinite credit, infinite resources etc.”
“The task is to find out exactly when government intervention is needed and when it is not needed.”
——————————————————-
That sounds good. I wonder which parliamentary committee is responsible for the task of finding out exactly when government intervention is needed and when it is not needed. Or, isn’t it the responsibility of the PM, the Treasurer and the RBA assisted by vocal criticisms from their counterparts in the Opposition?
Looking from a deflationist’s angle, all these responsible fat cats are making decisions based nonsensical economic advice so that they have been and will most probably be wrong again and again.
The only tools they can use are “infinite liquidity, infinite budget deficits, infinite credit, and (presumably) infinite resources.”
These are highly inflationary tools.
If the economy ends up in infinite inflation against a logical deflationary trend, then all the intelligent people acting on logical thinking will be committing financial suicide and may even starve to death. But that is the least worry of the Govt, because the Govt naturally inclines to look after the wishes of the “voters”.
The Govt will probably prevail.
Put it this way. From an inflationist’s angle, Govt can only survive by inflating. Even if a new Govt is installed, it will also have to inflate to survive. The worse the deflationary trend, the more desperate the inflationary measure will become.
From an inflationist’s point of view, in the current fiat currency system, desperate inflationary measures will lead to hyperinflation; unless a religiously deflationary Govt comes to power.
Again, from an inflationist’s point of view, a deflationary Govt cannot survive; unless it’s a dictatorship.
I wonder which way we are heading for in the long run: hyperinflation, a dictatorship, a gold standard or equivalent.
October 10th, 2009 at 8:52 am
I have a problem with the following statement made by Dr Lacy Hunt:
“The private sector generates productivity of about 3 per cent per annum. So if you undertake Government stimulus measures, then, and if you shift the pie – the distribution of economic activity towards the Government sector and away from the private sector – over time what you will do is diminish your economies ability to grow. Because the Governmental sector does not produce increases in productivity, the private sector does. You get a small fleeting benefit with the net loss over time.”
I am not saying that under some circumstances private enterprises and not more efficient and innovative than the corresponding Governmnet sector. However several questions need to answered before I can accept the argument about the net loss over time.
1. Where did this number come from?
2. Did it apply to all the economy (is it an aggregate) or only some sectors?
3. Was 3% true in Russia in 1925 (NEP policy), in the US during moon landing project run by NASA or just in the 1990-ties during the dot-com boom ?
4. Is this rule fully applicable to developing countries like China or Brazil?
5. Does it apply to public services sectors like health care? In this context could we explain the self-evident difference in productivity of the health care sectors in the US and in Scandinavian countries?
6. How does this rule of 3% apply to Australia? Does it apply to the situation when we have to reduce our carbon footprint?
7. Isn’t it just an element of neoliberal propaganda used to scientifically “prove” that you need to hate the institution of state, you need to privatise everything, destroy the public sector, remove any control of economic activities so that banks and corporations can “innovate” freely?
October 10th, 2009 at 8:53 am
Flying pigs Philip! -:) Even more unlikely than Obama winning the Peace Prize–or at least I would have said that two days ago.
October 10th, 2009 at 10:52 am
hi philip,
re the nobel prize for economics,
they also have a prize for literature,
i’m wondering if some of the prizes have been mis classified
in the past,
atleast in regard to the literature prize , the nobel foundation fully comprehend the fact that some of the work may be fictional
October 10th, 2009 at 11:24 am
Philip and Steve
If Obama can win for just talking about peace, then Bernanke can win for printing money to save the global economy (thus validating his research on avoiding another Great Depression). Of course, it matters not that neither peace has been achieved nor global economy has been saved.
ak
Most figures in economics have no universal validity such as the 3% productivity, referring to the US over a few decades of economic data. In the former Soviet Union, where the government effectively imposed nearly a 100% tax rate, people soon gave up doing anymore than necessary. Productivity growth rate would have been negative for decades. The Soviet government deficit spending in the 1950s and 1960s gave the illusion of great economic progress. But it was merely borrowing from the future.
Laurence
Because we have no sound economic theory on which to based public policy decisions, governments have to do what appear best for themselves and for their countries (in that order). The deserved demise of the efficient market theory gives governments more arbitrary power for intervention. There lies the danger that the power is abused, as has happened already in the US where enormous wealth has been transferred from the public purse to their financial oligarchs.
superpoincare
Robert Nelson considers “Economics as religion” (2001, Penn State Uni Press) and I agree with him. Economics is no physics; that is obvious. At one stage, physics was also religion, when Ptolomaic astronomy was in the hands of Egyptian high priests or the cardinals of the Vatican. Physics is now a science, because it has a certain epistemology of causality, theory and empirical evidence. Economics does not have this methodology and therefore cannot make progress. Rhetorical arguments such as those of chartalist (or efficient market theory) usually have contradictory or unrealistic assumptions which are either overlooked or deliberately ignored. The economists have also ignored empirical evidence which falsify their theories. For example, most research results in finance are “anomalies” i.e. minor curiosities in relation to the prevailing paradigm of efficient market theory. It is a way ignoring contrary evidence, which a science such as physics will take seriously, leading to theoretical modifications and progress.
October 10th, 2009 at 1:14 pm
Some good discussion about economics as political intent. This is exactly what economics is of course, the political intent to produce a designed economic outcome. I know Steve strives for a “pure” theory (and thank god he does), but in reality the bottom line is : If it doesnt aid the re-election effort then what good is it really? The current “solution” is that we need MORE debt just to function. Oh Joy.
Hollow Men is not a comedy. It is a parody.
http://www.abc.net.au/tv/hollowmen/#/intro
Laurence;
“Looking from a deflationist’s angle, all these responsible fat cats are making decisions based nonsensical economic advice so that they have been and will most probably be wrong again and again”
I could not disagree more. The fat cats are basing their decisions on what gets them re-elected and keeps their snouts at the public trough. The general notion that Govts are benign benevolent entities is so erroneously pervasive it clouds good judgement. Getting it wrong for whom? Not them, you can be certain- if it get’s them re-elected. As a parlaimentary democracy we are fortunate. But, what we need to all recognise is that strict and severe limits must be kept on ALL Govts if we are to be free- in this case free of debt. Until the electorate imposes , through OUR Govt, strict limits/guidelines/regulation on lending and debt, there can be no resolution to our debt sustained nightmare.
Govt propaganda globally has done a tremendous job to convince people that the GFC has been defeated. Manifestation of this is seen no clearer than in the absurd PE levels currently on the S&P500;
http://shockedinvestor.blogspot.com/2009/10/s-average-pe-now-4905-at-highest-level.html
October 10th, 2009 at 1:29 pm
Lyonwiss,
When I read your comments below;
“Credit and government budget deficits are different aspects of bring forward consumption: only a time shift. Government spends the taxpayer’s money. The more government spends the less the taxpayer has to spend. Printing money is only an illusion, leading to general inflation but no additional resources.”
………… I immediately thought of the Ken Henry testimony before the Senate when this intelligant man was trying to argue that taxpayer funded Govt stimulous must remain, while interest rates rise so that we can all pay more in servicing higher interest rates and ……. AN INCREASE IN FUTURE TAXATION.Henry obviously is not a chartalist. Even he realises that sovereign debt must be repaid with real money- OUR money.
Folks, this is a time honored formula for re-election, esepecially for Socialist Govts. Borrow from the future NOW to fund consumption/wealth distribution NOW, then present the astronomical invoice to you AFTER the election to be paid down many years ahead ,well AFTER the current crop of political parasites has moved on from having their fill at the taxpayer’s expense. We cannot avoid the parasites, but we can avoid the debts.
October 10th, 2009 at 1:41 pm
ak,
“7. Isn’t it just an element of neoliberal propaganda used to scientifically “prove” that you need to hate the institution of state, you need to privatise everything, destroy the public sector, remove any control of economic activities so that banks and corporations can “innovate” freely?”
I don’t think so. What Lacy does correctly points out is that Govts are first and foremost self obsessed and therefore it is wise they should not be trusted economically because of this obsessive vested interest. There is a large element of naivety to think otherwise and that applies especially to Socialist Govts. Stronger and fairer Govt regulation would be a good thing. Govt displacing and substiting itself for the role of private enterprise is the road to tyranny and serfdom.I firmly beleive we are well down that road now.And the leverage being deployed to herd us there is DEBT- private and Govt.
October 10th, 2009 at 1:45 pm
Lyonwiss,
You are trying to describe the command economy using methods which can only be applied to the mixed or market system.
“In the former Soviet Union, where the government effectively imposed nearly a 100% tax rate, people soon gave up doing anymore than necessary.”
I was referring to the NEP era (mid 1920-ties) but let’s leave this topic – you probably referred to what happened later.
People gave up doing any more than necessary due to the way everything was micromanaged. First of all you need to remember the horrors of the Stalinism. Then in a so-called “real socialism” you wouldn’t be awarded for any productivity gain. Possessing any means of production was strictly prohibited – this was the foundation of communism. Any dissent or showing too much initiative was punished. However some apparatchiks were able to amass formidable fortunes because they were either corrupt or stealing the property of state outright.
http://www.nytimes.com/1998/07/01/world/galina-brezhnev-69-child-of-longtime-soviet-leader.html
“Productivity growth rate would have been negative for decades.”
True – for the last few decades. I have data for Poland but it is embedded in an article written in Polish so I’ll leave this topic.
“The Soviet government deficit spending in the 1950s and 1960s gave the illusion of great economic progress. But it was merely borrowing from the future.”
Not true – in the command (planned) economy deficit spending was irrelevant as money didn’t play the same role as in the market economy. They didn’t need to borrow anything from anyone. Money was 100% fiat without any real credit system – just printed. Economy was production-constrained not consumption-constrained. Prices were set by the planning commission and a lot of articles were rationed. I would say that deficit spending and food rationing have very little in common.
It is good that you have raised these issues.
If we are serious about reduction of carbon dioxide emission we have to introduce carbon rationing one way or another. The most obvious solution is heavy taxation and allowing for the market to readjust. I am not entirely convinced that we have models which can predict how our economy will behave. We may need to revert to studying Kalecki regardless we like him or not.
However if we are not serious about reduction of carbon dioxide emission the environment will readjust accordingly. Then we may need to revert to studying Malthus regardless we like him or not.
October 10th, 2009 at 1:59 pm
GSM,
“Govt displacing and substiting itself for the role of private enterprise is the road to tyranny and serfdom.”
But my point is that this is just an opinion – not scientifically proven. What if somebody proves that private corporations like Monsanto actually enslave us?
http://foodfreedom.wordpress.com/2009/06/16/hr-2749-totalitarian-control-of-the-food-supply/
I am not saying that I believe or do not believe in this story as I don’t live in the US and I am not a food expert. I can tell you how investment banks are making money on naive investors.
I would like to live in a free and liberal society giving equal chances to anyone but if this is too utopian – I prefer a strong democratic government controlling the economy (even if this leads to the mixed socialist-capitalist system and certain erosion of property rights) than a weak corrupt government and strong corporations eroding personal freedom.
I don’t think that we have not offered enough freedom to corporations and banks. They have proved already what they can do.
October 10th, 2009 at 2:13 pm
ak,
“The most obvious solution is heavy taxation and allowing for the market to readjust. ”
Here again, the answer to all our problems- more and heavier taxation.More power and money to Big Govt. Wrong solution.The market would LOVE an ETS, another speculative commodity to trade. Its the taxpayers who will suffer.The host supporting yet more parasites is NO solution.
There is a considered body of scientific evidence that dissuades one to even believe that a climate “problem” actually exists. And even if it did, that carbon emissions are it’s true driver in any case.
http://www.climatesceptics.com.au/australian-nz-scientists-against-agw.html
http://www.climatesceptics.com.au/australian-nz-scientists-against-agw.html
http://epw.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=83947f5d-d84a-4a84-ad5d-6e2d71db52d9
Global Warming/Climate Change/ETS scheme?Carbon tax- all definately are scams to channel vast sums of money- taxpayer money- to Govt and their chosen”freinds”.
Who might be those freinds? Well, Goldman Sachs will be a very MAJOR global player in any ETS sceme. Always ask; Cui Bono?
http://www.businessinsider.com/john-carney-look-who-really-controls-tim-geithner-2009-10
I am definately not advocating unbridled atmospheric or any kind of other polution. Far from it. But any for of money generating system that puts Govts in bed with ever powerful financial institutions is doomed by it’s nature corruptible.
October 10th, 2009 at 2:29 pm
ak,
You take my comments to extremis. I was not advocating unfettered corporatism. Interesting you use Monsanto as an example though. Do you think Monsanto was able to make all it’s dubious achievements without compliant Govt enabling?
I could say the same here of your comment;
“I prefer a strong democratic government controlling the economy (even if this leads to the mixed socialist-capitalist system and certain erosion of property rights) ”
…….. I belive most Communist states had the word DEMOCRATIC proclaimed in their statehood. I remember a very enlightened comment once along the lines that “any state that must name itself DEMOCRATIC state of xxxxxx, usually is anything but.How true.
You seem to believe that Govt can do a good job of “controlling ” the economy and most else. Just like in China perhaps. With it’s massive pollution and entrenched horrific human rights abuses?
I don’t believe Govt should or can effectively control the economy. And if it attempts to, it will do so in such a way as to distort the economy for it’s own political benefit- much Like the command economies of communist yore. Strong , effective and impartial regulation IS needed. That would best deliver the apprpriate outcome. Rather than Govt displacing and masquerading as private enterprise.
October 10th, 2009 at 2:46 pm
GSM,
Communist states were based on tyranny not democracy. The fact that they stole the word “democracy” means nothing. Hitler was also a national socialist – so what?
I am not advocating any kind of communism but I dare to say that individuals may have more personal freedom in Sweden than in the US even if they don’t have so many guns there.
I am fully aware of most of your concerns regarding corruption in our political system – because of that I am quite pessimistic regarding whether we can reform our society in time. I agree that impartial regulation not manual control should be the way to go. I may not fully agree with the point about taxes.
Regarding the climate change I fundamentally disagree however I know that Steve doesn’t want the issue to be discussed here so I will not present my arguments on this forum.
October 10th, 2009 at 3:32 pm
GSM
What you are saying is that an election is an advanced auction of stolen Goods-OURS
October 10th, 2009 at 3:34 pm
GSM,
Actually I would like to pay $1000/year or even $2000/year more in taxes to have bloody public transport fixed in Sydney rather than rub my shoulders with road trains riding on my motorbike every morning on my way to work (40 km).
4 billion/year for 10 years should be enough to start with.
Public transport in Sydney does not even meet quite low Eastern European standards. Since NSW Government is in dept up to the hilt and cannot issue their own currency nothing can be done unless we taxpayers pay for the infrastructure (as public-private partnerships are dead).
But because of the neoliberal poison in our brains people will always choose to pay lower taxes and rot in traffic jams. I am not commenting on the disgraceful way both main parties have approached this issue and on all the rubbish talk from both the factions of the supposedly progressive NSW Labor party. Point to you GSM – it didn’t work, doesn’t work and will never work.
Unless we remove the poison from our brains.
October 10th, 2009 at 4:38 pm
GSM,
My apologies to interrupt your discussion with AK and Lyonwiss, but I believe there is a conceptual flaw in your reasoning. What does socialism mean to you?
I am not suggesting this is your case, but people often confuse “government intervention” for “socialism”.
But they are not the case: AK already mentioned the national-socialist (Nazi) example. Let me elaborate a little about this.
The National-Socialists did use government intervention, and very extensively, too. But so did many a country during those days, among them, the USA and Britain. The differences among those regimes cannot possibly be explained on government intervention alone.
Even today, there is no country on earth where at least a minimum level of government intervention is not applied. Even Adam Smith admitted that government intervention was required, if for no other reason, to maintain public order and to protect private property.
So, one first question is where to draw the line between legitimate and illegitimate government intervention?
But there is an even more important question: towards what ends is this intervention directed?
Because the first question requires a more personal answer, let me mention some facts regarding the second: corporations exist today, because of government intervention (the state authorizes their existence, gives them legal personality and gives their owners special rights, as limited liability); intellectual rights are temporary monopolies, given by the state; governments all over the world have just handed down trillions of dollars to business interests, to keep them afloat. I don’t want to extend too much on this, and I am sure you get the general idea: those are all government interventions and, to me, they are hardly “socialist” in any way. They are not socialist because they benefit business groups or the elites (although they are certainly justified by invoking the greater good, but that is another matter).
Socialism is government intervention directed to correct social and economic imbalances. If the US government had handed down money directly to the orginal borrowers who were going bankrupt, this would have been a socialist-inspired example of government intervention.
Of course, as one is free to draw one’s line, one is also free to qualify these different kinds of government intervention as good or bad. I will not try to persuade you one way of the other.
Thanks.
October 10th, 2009 at 6:54 pm
Lyonwiss,
Chartalism is no where related to Efficient Market Hypothesis.
In case you think that neo/post Chartalists are not methodological, welcome to Post Keynesian Economics buddy.
Check this http://www.boeckler.de/pdf/v_2009_08_03_avoie_lecture_part2.pdf
http://www.amazon.co.uk/gp/reader/0230500552/ref=sib_dp_pt#reader-link
October 10th, 2009 at 6:56 pm
ak
You said: “Not true – in the command (planned) economy deficit spending was irrelevant as money didn’t play the same role as in the market economy.”
Money does not need to be involved. A farmer who consumes more corn per year than he produces is indulging in deficit spending.
You said: “Public transport in Sydney does not even meet quite low Eastern European standards.”
This is a good example of where government spending could increase productivity. Imagine one million or more people saving $$$ and one hour per working day in lost time from inefficient commuting.
GSM
If only we have good economic theories, governments cannot then do whatever they like (without justification). That’s why it is important not “to let a good crisis go waste”. We must grasp the (once in a century) opportunity to build better economic theories for the sake of the economy, democracy and the planet. A journey of a thousand miles begins with a single step.
October 10th, 2009 at 7:16 pm
superpoincare
Chartalism or neoclassical economics or efficient market hypothesis or post-Keynesian economics or Austrian economics or … (not all same as each other) are all simply unscientific. Many of their concepts, let alone predictions, are not based on empirical evidence.
I have never seen an empirical justification or construction demand curves in macroeconomics. Can anyone show me? Your standard of acceptance is different from mine. Proper science does not have so many different schools (or religions). (I’m not saying school = religion).
October 10th, 2009 at 8:06 pm
“Chartalism or neoclassical economics or efficient market hypothesis or post-Keynesian economics or Austrian economics or … (not all same as each other) are all simply unscientific. Many of their concepts, let alone predictions, are not based on empirical evidence”
i dont know lyonwiss,
(G-T) = (S-I) – NX
the above national income accounting identity seems pretty empirical to me
October 10th, 2009 at 8:20 pm
Lyonwiss,
In the links I provided you and the models there, there is no supply-demand – there is no market clearing except the financial markets. Simply saying that it is unscientific is no argument because you have to see the stuff first. Economics seems like playing with words because mainstream economists have been doing that.
As far as acceptance is concerned – my acceptance standards are high rather than low. I am very much aware of the precision in other academic disciplines such as the prediction of the “magnetic moment of the electron” to the 11th place of decimal. Yes economics is far from there. That is not a correct way to put it because there is uncertainty in this world. But there has been good work done by economists associated with the Levy Institute – names such as Randall Wray, Wynne Godley, Marc Lavoie, Gennaro Zezza and other places in the world – Bill Mitchell, Scott Fullwiler, Warren Mosler et.al. just to name a few.
In case you want something concrete and formal you can check the book of Wynne Godley and Marc Lavoie called “Monetary Economics” where they have 100+ equations in the end. They include all realistic variables – household debt, wages, firm loans, bank profits, government debt, fixed capital, inventories etc. (Please note – unlike this school, most economists do not consider the government). Also their approach is “everything comes from somewhere and goes somewhere” – in other words – watertight accounting. Its really an intellectual and open-minded and honest approach to modeling the economic system. Rarely do they make any claim without a proof.
If you want to see how to apply Chartalism in practise may I recommend you to go to Bill Mitchell’s blog and without any bias, look at what he has to say.
October 10th, 2009 at 8:51 pm
superpoincare
100+ equations do not impress me. I have worked with more. It took me 24 years in academia, business, markets and government to come to my (shocking?) conclusions. You said: “In the links I provided you and the models there, there is no supply-demand – there is no market clearing except the financial markets.” All charts in the presentation you provided are supply and demand curves, even if they do not conclude equilibrium or market clearing.
mahaish
Accounting identities are mathematical identities for finance. They are defined in such a way that they must be true (2+2=4). If they are not true on your records, then someone has stuffed up in data entry. Accounting identities have nothing to do with empirical evidence to support or refute an economic theory.