Michael Hudson Talk & Green New Deal Discussion
on November 14th, 2009 at 4:42 pm
Michael Hudson was a recent and welcome visitor to Australia, and I helped arrange a talk by him at Customs House that many people on this blog supported financially, and quite a few attended. My own attempt to record the speech was unsuccessful–the sound quality was just too low–but another recording of the event (by Sean Reynolds from Politics in the Pub) was more successful than mine. Here it is below. My apologies for taking so long to post it, but I’ve been even busier than usual recently and I simply didn’t have the time to do so until now.
The sound quality is not great (I recommend using headphones rather than relying on your computer’s built-in speakers) and the image is low resolution, but it is a record of Michael’s speech for those who were unable to be there. The discussion chaired by Miriam Lyons from the Centre for Policy Development is also very much worth watching.
On a related note, I took part in a discussion at the “Green New Deal” conference in Melbourne last month with Greens Senator Christine Milne, and community activists Jake Wishart, Joan Staples and Hendro Sangkoyo, on the best means and methods of effecting real action on climate change.
The good people at SlowTV were there once again recording the discussion. Click below if you’d like to watch. This is a professional quality recording, so the sound and visual quality is extremely high–I wish we’d managed the same for Michael’s talk at Customs House. It shows the enduring value of professional media production over what us amateur media types can do, even with enhanced consumer level technology.
I’m in Helsinki now and have a ton of work to do this week before I can put up any new posts or particularly contribute to the discussion here. Once that work is finished, I’ll be posting several videos, including a detailed presentation of my multi-sectoral model of the economy made to the UNEP in Bangkok on last Tuesday.
$A update,
Some of us believe that the new found liquidity (ability to sell things for a good price) in Australia is due to the carry trade and not based on sound fundamental rationality. If this turns out to be true the implications are massive. A reversal of the carry trade would be swift and very painful for anyone that is highly leveraged and has any currency exposure. Eg, importers, hedged exporters, banks, foreign investors, etc.
Has anyone noticed how the Australian share market (and France, Germany, Japan, etc) has diverged from the main US markets? ASX topped on Oct 15, Japan topped 2 months ago, yet US topped last week. This is generally viewed as a sign of weakness.
A very interesting development last week for the $A. The $A traced out a clean impulsive 5 waves down. Not enough info to confirm a trend change yet, but that is the first sign. It’s also interesting that as the $A fell, the ASX fell hard and diverged more from the US markets.
On currency, the Swiss, Euro and GBP all seem to be forming a base and have not been rising to new highs against the $US. It could be yet another example of, when the chorus of media finally awakes to the “carry trade” and we read about it in every paper, the trend is fully mature and reversing.
Anyway, too early to call yet as a hard fall in the $US could wash all those divergences and “early signs” away.
I still hold that when the $A turns, it will signal very tough times (much tougher than ’08) ahead for Australia. The frog is in the pot and it’s like a soothing hot bath at the moment. Who wouldn’t want to jump into a hot bath? Will the bath start boiling though?
US still sinking, interesting thing from this article, which may be obvious to some of you is that there is a strong link between unemployment and mortgage deliquencies
http://abcnews.go.com/Business/wireStory?id=9125885
But China still growing
http://www.smh.com.au/business/chinas-growth-surging-says-expert-20091122-issw.html
Internal Chinese growth is very positive for Australia with 80% of Australian imports not used for further export but consumed internally
http://edition.cnn.com/2009/BUSINESS/11/03/australia.interest.rate.ft/index.html
BTB – why would weak AUD be bad for Australia?
Steve,
I respect your comments on Climate Change and posting about them here on the blog. However, I think that the economic impact of a fasecious CPRS impost should be considered for discussion. I cannot speak for others, but my main point on this subject is that it is just another financial scam being cooked up by Govts and scientists to fleece what is left in the pockets of the sheeple. Another “War on Terror” if you will- something to frighten the masses into funding a “war” against and vote politicians into power with.
Steve, could you clarify this for me? Thanks indeed.
nanks,
This may come as a surprise but I don’t post here to impress you or dissuade you of your opinions so whether you have doubts as to my prognoses is irrelevant at least to me. I am neither an economist or scientist. But I have been “around” a bit and I’ve seen some pretty effective money making ventures in my day. So my humble contribution here is an effort to “join the dots”. Because I accept that what I am being fed by MSM, Govts et al is nothing short of propaganda and therefore my meager efforts are best directed at searches for the truth.
Hi TITINT,
In this case the falling $A will probably reflect the loss of confidence in $A investments (from a foreign perspective) and the currency itself. The falling currency is more a sign of where the money is going, than a sign of good or bad.
Australia is totally dependent on importing money to keep fueling our industry and our speculative bubbles. Recently, the money has been flooding in, as reflected by the strong currency. When that money leaves the value of assets in $A will fall. Another way of saying this is that liquidity will fall.
A falling $A will help our exporting industries, but our banks and retailers will panic. All this is degrees of course. If the $A only corrects by 10%. What I have said will not apply. If we have a sharp 30% or larger correction, then the panic will spill over to the public as well.
I’m tipping a larger faster correction as the speculators have to cover their shorts back home and the money cascades out of Australia. This is only a theory of course, no a fact.
TruthIsThereIsNoTruth,
I fully agree with you on the benefits of a weaker AUD for the “real” productive economy. However the adjustment may be very painful to the consumers (the “real” economy as defined by Adam Smith). What if the real estate bubble finally bursts? But we have to have a weaker AUD if we ever want to rebalance our trade and stop the de-industrialisation.
This is the fundamental contradiction. We are talking about different time scales – for the consumers these are processes occurring in months, for the producers in years. The policies mentioned by GSM as “CPRS” will have an impact in decades to come. For me all these processes have to be considered together and discussed openly even if MSM and the politicians desperately try to keep them separated.
“Slowly boil a frog”.
Laurence #117
Yes, I am also suspicious about how healthy hydroponic food really is. I doubt it is actually bad for you, but I wouldn’t want to rely on it for a complete balance of nutrients. I have similar concerns about an idea called aqua-ponics. My step father is currently obsessed with this. The plants are rooted in scoria or gravel (not soil) and water (including fish wastes) from a fish tank is pumped through the scoria to flow back into the tank. The idea is you just feed the fish and then can obtain both fish and vegetables from the system. The plants look healthy enough but again, I am not sure about whether this system would provide a good balance of nutrients. The inventors promote it as a solution to food problems, and seem to, among other markets, target pensioners saying they can grow most of their own food in a small space. I am not sure how sound an environmental practice it really is. i.e what goes into the fish food, requires large plastic/fibreglass tanks (at least thats how they sell it) and large quantities of mined gravel/scoria shipped god knows how far (many places probably could obtain/make this locally).
It seems there are no easy answers to the local food problem. In the book recommended here by someone a while ago “Gardening when it counts” by Steve Solomon (who has grown at least half of his family’s own food for around 20 years) the author states that you cannot have a closed system for gardening in small urban plots, you cannot generate enough organic matter (you can on a small farm). He also claims that the compost produced by large municipal composting/recycling systems is not good enough for gardening as the way it is produced loses a lot of the nutrients.
Sorry everyone else about this off-topic post.
“Australia is totally dependent on importing money to keep fueling our industry and our speculative bubbles”
borrowing in ones own currncy is one thing, but borrowing in someone elses is entirely another matter and undesirable
which is precisely why the government should ban or at the very least put severe restrictions on banks from obtaining overseas sources of funding, and fund any shortfall itself.
it could get the ball rolling by getting rid of its surplus fetish for starters,
it wouldnt prevent asset bubbles from forming, allthough depriving banks of a foreign source of funding ,would slow things down a little.
Hello mahaish
If the government banned foreign borrowing by the banks the government would then need to borrow the foreign funds to cover the ever increasing current account deficit. They have started to do this, are you suggesting that this is good in the longer term? Or are you suggesting that we ban imports as a long term solution?
“US still sinking, interesting thing from this article, which may be obvious to some of you is that there is a strong link between unemployment and mortgage deliquencies”
hi titint,
yes the second wave is lashing the americans perhaps as unemployment heads north of 10%.
the psychology of this will be interesting
does it mean that this mother of all carry trades has a fair way to go, and the oz dollar with it .
or are the markets going to get a nervous twitch and hence there is a correction in the wings and a portfolio adjustment that will send the oz dollar scurrying south
either way its going to end in tears me thinks, especially in the asset markets this carry trade is supporting
Interesting article by Stephen Kirchner on NZ monetary policy.
Kiwi Monetary Muddle
hi brightspark1,
in my opinion ,being the currency monopolist , the government doesnt need to borrow a cent. it can intervene in the banking system itself by simply spending money , lending money or purchase bank assets itself in its own currency, in order to meet any funding shortfall.
but there are problems, in that such an approach would come into conflict with a fight inflation at all costs interest rate targeting approach which seems to be mantra these days, in that the the larger deficits this may intale would restrict the ability of the reserve to run its own flavour of monetary policy.
so i suppose if we want to restrict foreign borrowing then the government would have to take direct political control of the reserve bank again and get rid of interest rate targeting perhaps.
your right to point out that such a stratergy would have costs especially to the import sector. and developing import substitution industries can be measured in decades
so whilst we may get greater domesic financial autonomy we may have to make sacrifices in terms of currency stability and capital flows into the country.
but we are lucky in that the government will never go broke, and if no one wanted to give us a cent we can still be self sufficient and fund it in our own currency.
as far as we are concerned we have all the money and resources we need to build our little bit of paradise. not sure if we have the brains or the wisdom yet
A counter-example is relatively easy to manufacture:
x = 1.01*x – 0.03*x*x*x / (200 + (x+5) * (x-5));
When iterated, it will demonstrate exponential growth for -5 < x < 5 and demonstrate exponential decay for values outside that band. Needless to say there are two stable equilibria (and one unstable equilibrium) which should satisfy anyone's definition of limits. No oscillation (violent or otherwise).
Hello Tel
Exponential growth is not just fast growth but growth where the function is a power of another number.
Your example is a cubic function divided by a quadratic function, nothing like an exponential function.
An example of a simple exponential function is:
y = A*(B**x) or y = C*(e**(x/T)) where e is the natural exponent approx 2.718.
where ** means “power of” eg A**2 means A squared or A*A
and A**3 means A cubed or A*A*A
A simple exponential function will just increase forever and eventually hit limits which in natural and economic systems will cause the catastrophic failure. The feature that makes the exponential fuction even more destructive in economics is that the rate of increase also increases expontially.
The two points that you describe as equilibria are at a maximum and a minimum how did you decide that one was stable and the other unstable? Stability or instability in natural or man made systems requires feedback.
If you iterate:
x = 1.01*x
then you get 1% exponential growth. By “iterate” I use the “=” as a value assignment from one time step to the next. If you want to be more formal about it then:
x[t+1] = 1.01*x[t+1]
Or just the same as punching a starter number into your calculator and then typing “* 1.01 =” again and again. I didn’t want all the x[t] notation cluttering up my formula in #165 but expand it out if that helps. Some people get fussy over “=” and prefer “:=” to be the assignment operator or even “<-" so I spelling it out here.
That's the iterative formula for exponential growth. If it helps I can post link to a spreadsheet or something,
I guess you will just need to crank the numbers and find out.
You like C programs? Give that a run… hope the *pre* tags work round here.
BTW: my equation has no imposed limits, use any value you like as the starter, the equilibrium points are natural limits generated by the iterated equation.
Tel,
You completely miss the point. If you write x*=1.01; in a C program and then iterate this is an example of a difference equation not a differential equation.
“In mathematics, a recurrence relation is an equation that defines a sequence recursively: each term of the sequence is defined as a function of the preceding terms.”
http://en.wikipedia.org/wiki/Difference_equation
http://en.wikipedia.org/wiki/Differential_equation
What kind of equilibrium are you talking about? Are you referring to a limit of a sequence?
http://en.wikipedia.org/wiki/Limit_of_a_sequence
There exist methods of approximating ordinary differential equations based on converting them into a difference equation.
The most common is probably Runge-Kutta
http://en.wikipedia.org/wiki/Runge_Kutta_methods
Ak,
The original statement specified “a model” so maybe you don’t like difference equations but to be fair, most things in finance are calculated as difference equations (e.g. interest in a bank account that compounds daily). When BrightSpark1 makes claims about the existence of any model, those are broad claims indeed.
If you must have a differential equation then for purpose of this discussion just translate it to:
dx/dt = 0.01*x – 0.03*x*x*x / (200 + (x+5)*(x-5))
In this case I’m using a genuine equals, not a shortcut for value assignment operation. I’ll leave you to plug that into your favourite solver and try various initial values. The three equilibrium points are easily seen where dx/dt = 0 and no surprise there.
I’m not claiming that this model represents anything in the real world, merely that such things do exist.
Australia dollar ready to crash is hit with the herd?
Draw your attention to Jim Chanos the investor who made a fortune shorting Enron,Macquarie Bank and now thinks China is ready to blow up.
Think the trigger will be China and like to travel to China to see how big the stock piles of resources are and how many giant tankers are in the harbour full?
Remember going to massive expo investment show in Darling Harbour Sydney couple years ago when everything was booming.
The Intelligent Investor magazine made a impressive presentation slide shows, remember two different paradigm pictures regarding Macqaurie Banks financial position a pack of cards or a castle with a strong moat around it .
Of course strong moat was the thinking then nearly $100 a share and Jim Chanos seen as crazy.
Will the same happen this time with China?
Post 50
I think you have a point. Where does that leave planning and ones own fiscal management? Does not the Govt owe more to the electorate tahn to say every thing is rosy when they”know” that to “help” their predition they are placing their constituents into more debt and greater risk of economical pain.
Do they really know or do thet really believe in their own B.S. or wishful thinking?
Steve,
I’m in the process of implementing your scheme (intermediate model) using Scilab. I’ve got most of the parameter values from your paper, but I can’t see all the initial conditions for the odes. I’ve used a(0)=2, W(0)=1 but I can’t find values for initial population N(0) and initial price P(0). I could put P(0) equal to the equilibrium value at t=0 and N(0)=1 (say, million) but as a first step I’d like to replicate exactly what you’ve done.
In Figure 8 you have FD+FL as 50% GDP but by my understanding should be 100%. It’s an artificial point, but makes me think I’m missing something.
If you find time to comment that would be welcome.
Hi djc,
yes, sorry that my documentation is a bit tardy. It would help if I derived my equations in the same engine that I publish them in, but I use mathcad for the latter and various programs (Word, Scientific Workplace) for the latter. I’m thinking of moving to just one platform (Publicon/Mathematica or Scientific Workplace) to get around this hassle.
In the meantime, I set initial price to 1, and population to such a level that, given a value for L, the employment rate (L/N) was 95%.
I’ve uploaded a PDF of two simulations for a forthcoming conference here and here. They necessarily have the initial conditions embedded in them at the Given … Odesolve() block.
Steve,
Thank you for giving us enough rope. I will play with the intermediate model (in scilab) for sure – most likely over the weekend.
Tel,
The equation you wrote indeed has 3 equilibria (I didn’t have time to verify whether they are stable or not).
But the point BS1 was making was slightly different. In most of the cases real systems which embed both exponential growth and limits end up in oscillations. Technically you are right – it is possible to create a highly non-linear model which behaves exponentially for a certain amount of time and later gets into saturation. However people who claim that real systems (like for example our housing assets) which sustained a period of exponential growth will later saturate rather than collapse are quite often wrong. It is because very special conditions have to be met to prevent instability – that is equilibria must be stable.
http://en.wikipedia.org/wiki/Equilibrium_point
We will see whether claims made by Ric Batellino about ever rising and them moderating house prices come true. Has he evaluated his Jacobian matrix?