The same, only different

If Germany, China and Japan invested their surpluses in their own economies, and they successfully uncoupled from the US and the UK, it would leave the US and the UK high and dry.

Without foreign investors to buy gilts and treasuries, our governments would struggle to afford their spending plans, and we would struggle to afford our imports.

Britain and the USA would need to find exports to sell to China, Germany and Japan. But just what would Britain sell? I can't think of anything, seeing as exports of bank loans, insurance and defence manufactures were Britain's only trade surplus during the years preceding the economic crisis. North Sea oil is not what it once was.

The search continues for Britain's magic exports.

The reason we've had to print money to stimulate the economy is because cutting inerest rates did not do the job. All our money is sitting in bank accounts in China, so if all this shiny new money is spent on imports from China over the next few years then were will we be then?

If the Chinese were responsible with their demand for borrowers for the prevailing low interest rates then they can be found guilty of waging economic warefare on the West. Since their currency is artificially fixed there is no means of adjustment for them offering artificially low interest rates and it is done by keeping their people in poverty.

But I cannot see a motive.

The West on the other hand could be argued to have set interest rates too low in order to exploit the available Chinese credit. Certainly QE is economic warefare repayment in dollars is reducing against a third currency, the Euro, say.

Here I can see a motive - the boom years 2001 to 2007 ish that leaders enjoyed knowing that any future leaders would suffer.

The Chinese are now moving their money out of the dollar. Perhaps they will invest in commodities or the Euro. Perhaps they now want revenge or it is stage II of their original plan. Either way we shall suffer.

Anyway it just goes to show the old Milton Friedman adage is true that all our problems are caused by political interference in the market.

"The same, only different" view supports Russell Napier's ("Anatomy of the Bear") view of the eventual destruction of markets in 2014.

"Ever higher government borrowing" will eventually fail like all Ponzi schemes, except this would be the biggest of all failures.

Are we asking crisis, what crisis?

Dear old mis-quoted Sunny Jim, it is a good thing he never saw what the next Labour government after his did to the country.

You know, Stephanie, I think what has to happen has only just started. The key word is `rebalancing', but how does one balance massive debt and an asset crash on the one hand with saving surpluses and productivity on the other? It just doesn't fit, does it? At least not for the moment and even when it does start to happen the necessary qualification will be `with difficulty'.

The UK is now GBP 3 trillion in debt with more than 2 million unemployed to date and another three million or so economically inactive in one way or another.

How are we going to become productive again? Where are all the small jobbing workshops that underpin the economic miracles of countries like Taiwan who pulled themselves up by the bootstraps after catastrophe? Even if we had such facilities what would we make with them? We just have not got the infrastructure, the workforce or the investment to restart our economy and no products with which to go to market.

The economy is going to have to change because otherwise we will all starve. I have no doubt that out of necessity we will eventually create our own solutions, it is just that the bomb has dropped but there has been no explosion.....yet!

MrTweedy (#1) "Britain and the USA would need to find exports to sell to China, Germany and Japan. But just what would Britain sell? I can't think of anything, seeing as exports of bank loans, insurance and defence manufactures were Britain's only trade surplus during the years preceding the economic crisis."

Careful now, keep talking like that and you'll get called mad. ;-)

PS. We could try exporting subversive/narcissistic people. I'm not where the export market now is, as the UK/USA may have cornered it.

I am a scientist, and I was reading an article recently about the fact that Indium Tin Oxide is likely to run out in a decade or two. Who cares, I hear you say? After all, Indium Tin Oxide is only really used to make touchscreens for electronic devices and we we'll find alternatives. True, we will, and you are right we can probably survive without Indium Tin Oxide touch screens anyway. But suppose someone discovers in 50 years time that there is a super application of Indium Tin Oxide, in say, curing some illness.

What then, are we going to build unfathomable nuclear fusion machines to manufacture indium tin oxide by blasting hydrogen together? Maybe we could start mining on Mars, maybe there is some Indium Tin Oxide there?

The story might seem irrelevant, but I'm trying to make a serious point.

All this talk of market forces, trade imbalances, interst rates, is a smokescreen. Our sustainable standard of living depends upon the laws of nature. If a resource is non-renewable, and we want to be prepared for future possible uses, then the only principle to live by is: don't consume it for frivolous reasons. But an essentially free market does not lead to restrained consumption - it tends to drive the other way - different 'owners' of finite resources will compete to drive down prices and lead to over-consumption. If Friedman thought that finite resources can be managed optimally by a free-market without government interference then he was wrong. I'm not saying that Governments are that much better - they too are motivated by short term political impact. Perhaps the only way forward is for all of us to realise that consumption of finite resources is not economically sustainable - not because of balance sheets and exchange rates, but because of the laws of physics.

bravenewflabby (#7) "I am a scientist...." Are you mad? Say no more. Most here, like Alan Sugar, aren't into all that 'protons and electrons guff', they're into 'the real world' ;-)

It continues to amaze me that economist and governmental officials pretend to be miffed by increased savings in the U.S. and UK. Just as a reminder, great percentages of retirement and investment plans happened to disappear and although there are plans to re-captialize banks and businesses there is no plan to return anything to those who finance this entire process. Maybe, just maybe, individuals in the U.S. and UK are attempting to save enough money so that they may not have to work until they die. I know this sounds selfish but with no adjustment in prices and no return on investments the only option left is to try and save. Now that the governments have decided to fund the very people who lost our money, with no new restraints, you may find people a little cautious. Those who hid their money in cans and mattress' were the only ones coming out of this whole. No one wants to discuss the accountability of the banks and investment houses and do they have any obligation to repay the money they lost through negligence. I think this is because any investigation would show governmental complicity in the process and we all know that governments have no concept of accountability as they regularly exempt themselves from any attempts to hold them to the standards they devise for everyone else. I assume the thrust of your article is that we should all go in debt to help out the bankers and government. The entire system betrayed those who supported it with taxes and investments and apparently no one is to blame. Because people did not take to the streets and lynch government officials and bankers does not mean that people are not upset. I read that the Japanese courts are still deciding compensation for victims of the atomic bombs, so a governmental investigation may not be such a good idea.

7.

In fact people are already looking for replacements, carbon nanotubes looking like the best bet at the moment, although they cannot yet be manufactured reliably on an industrial scale. Of course, it's the indium that's going to run out. Plenty of tin and oxygen still available I hope.

It's a shame that something has to run out before we get off our butts and do something about it, but unfortunately the human race is pretty selfish in that respect. It's what makes global warming so potentially dangerous. It requires proactivity and appreciation of the long term consequences of our actions, neither of which we appear to be very good at.

ghostofsichuan (#9) "It continues to amaze me that economist and governmental officials pretend..."

Why not just stop there? There really were days now long gone when we had what had the semblence of a mixed/planned economy where nation states owned the Means of Production and Civil Servants managed these on behalf of the electorate. At least then, we could listen to politicians and have some faith in their exerting some control over what they were ellegedly in elected to manage on our behalf.

However, now nealry all of that has been explicitly devolved to anarchistic market forces and these have been shown to be as predictable and manageable as roulette wheels, perhaps it's time for Stephanie and other economic mystics to face reality and stop asserting that they have expertise in these matters? Many of the economic experts have have they not?

Unless you have a planned economy, what is there for them to manage and be held accountable for? It's all gone horribly wrong and they don't have anything credible to say. The curtains have been pulled back, and all they can prattle about now is their 'Fees Office' and even the workings of that are a mystery it would seem.

Posting 8 seems more than a little unkind. If the "real world" is what we are now living in then perhaps it needs some thinking that is radically different to that exhibited by those who got us into this mess. On the specific point of that posting it is perfectly reasonable (at least in the view of this other "non - economist") that we should give serious consideration to husbanding finite resources far better than we have been so far. Having said that I am far from certain that taking that approach will get us out of the present predicament.

Posting 9 takes a far better overview of the general situation, and it seems to echo a comment I made several days ago to the effect that the respective ambitions of the government and the governed do not coincide; the point about the government's unwillingness to be accountable for its actions (or perhaps more correctly, the lack of them) is particularly well made.

There seems to be some sort of view that UK recovery is contingent upon other countries adopting certain approaches, but why should the Chinese (or anyone else) worry about what our requirements are? They will only act to benefit our economy if such acts are to their own benefit as well; if they aren't, they won't. And indeed why should they? No - one has suggested that they were instrumental in causing the problem, so why should anyone expect them to engineer a solution other than to further their own cause?

There is an underlying problem in that any economic "equation" has so many variables that identifying a solution is nearly impossible. I cannot believe that there can be a "one size fits all" answer to what is such a widespread headache. As (I think) was suggested in #9 nothing has been done to prevent the same thing happening again for the same reasons at a later date.

In our present situation reading tealeaves or divining using sheep's entrails are as likely to produce a satisfactory outcome as any economic theory.

But as I have stated previously I am not an economist. But I can see when the Emporer's new clothes appear to be, er, non - existent.

#7

I don't think it's quite as simple as that. I operate on the premise that everything is possible, resources are infinite, energy is infinite, and what stands in "our" way is belief that they are not.

Free price systems rely on the idea that resources are scarce and need to be allocated. As soon as the concept of abundance enters into the picture, free price systems break down. Technology interferes with free price systems by striving for abundance, and the 'economy' responds by introducing artificial scarcity to preserve itself. Examples include diamonds(restricted production of synthetic diamonds), online music (digital rights), videos and other media (digital rights), oil (cartel/USD coupling) etc

I believe that it is merely our collective will, or lack of, that stands in the way of achieving global abundance, and that cultural lack of will is represented by or embodied in mainstream economics, free price systems and so on, which rely on scarcity to exist.

These ideas are not new and you can read more about such philosophies from people like these:
http://www.technocracy.org/
http://www.thevenusproject.com/

One thing I have come to realise over the years is that all technical problems are primarily social problems. It is about orchestration - even science as a general practice is really an orchestration, a culture.

If you could list all possible actions, list all possible contexts, and assign a probability of occurrence for each action in each context, for a given population, then I think you could call this a "culture". The likelihoods of certain behaviours, traits, it's the 'culture'. If that's the case, then a "method", "methodology", "technique" or "approach", if applied in that population, is a subset of the "culture". If you have an idea for a new technique, or approach, whether it be a recipe, the usage of a new invention, or an economic system, it's success in a particular population is going to always depend on how compatible it is with the "culture" prevailing. It's like Iraq and democracy.

The culture needs to somehow evolve away from free pricing and encourage abundance. Free market economics and such like is a cancer in the minds of people - it pretends to offer salvation as an ideal way of distributing resources, but surreptitiously encourages the scarcity of those resources.

Radiowonk (#12) "Posting 8 seems more than a little unkind. If the "real world" is what we are now living in then perhaps it needs some thinking that is radically different to that exhibited by those who got us into this mess."

It was biting irony. At least one ardent disciple of the Austrian School of economics/anarchism maintains that empiricism has no dominion here, so garlick, wooden stakes and Holy Water + Latin exorcism might be the only option. Reason certainly doesn't work.

We are now led to believe that so long as the machinations of 'The Fees Office' can be sorted out, all will be well in the Wonderland of Oz. Who knows what's happening in The City anymore, the economy depends on that remaining a black-box.

In posting 11 JadedJean has hit a nail squarely on its head. Perhaps this problem is compounded by the fact the the government claims to have things under control when in fact not only has it not, it has a vested interest in leaving matters unchecked.

The government could have put statutory limits on salary multiples for house purchases, and specified a minimum deposit, but didn't. There is a clear argument for not so doing; let house prices rise unchecked and the cash generated by stamp duty rolls in in ever increasing quantities. In fact, the house price boom would have been contained by simple measures like those and would have lessened the problem of first time buyers not being able to get a foothold on the ladder, but of course the government would have had less money to splurge on pet projects. Good, perhaps, from the electorate's viewpoint but not if you are the government.

Equally it could have reminded the finance industry of the old agage about not buying a pig in a poke, but didn't, because by allowing the industry to conjure up profits with the skill of the stage conjuror the cash kept rolling into the Treasury coffers. What is more worrying is that the finance industry does not seem to have learnt anything from any of this.

As was eloquently pointed out it seems to have had no idea of what was going on in the Fees Office, for the simple reason that it suited its purpose not to know. Our policy on that is to not have a policy on that. James Hacker and Sir Humphrey would have been proud of the ruthless application of that adage.

As for the "abolition of boom and bust"; I wonder if it was believed when it was said?

"The role of self - delusion in politics"; discuss.

radiowonk (#15) Most won't have it - they still think they're in Kansas - they know the facts but don't make the connections - I blame their education - see #24 for the music ;-)

"If you buy some version of this "savings glut" story, then you probably also think the basic imbalance between borrower countries and savers helped fuel the boom, and some of the financial market excesses which came with it."

Here we go again! The same old neo-Keynesian "jackanory" that it was the "savings glut" of heavy exporting countries such as China, Germany and Japan that caused the boom. The whole "global trade imbalances" fable is a convenient smokescreen peddled by central bankers, Keynesian/Friedmanite economists and their (not too bright) cheerleaders in the mainstream media. Their sorry tale of woe spuriously seeks to play down the role of government/central bank (artificially) low interest rate policy and monetary/credit expansion carried out by major importing countries (i.e., US, UK and others) as the main causal factor of the boom/bust cycle.

JadedJean # 11

"There really were days now long gone when we had what had the semblence of a mixed/planned economy where nation states owned the Means of Production and Civil Servants managed these on behalf of the electorate."

Now, what is contradictory about this statement, JJ?

LibertarianKurt (#18) I'm just describing what came close to Democratic-Centralism where the UK Civil Service once managed the state on behalf of the electorate who once owned the Means of Production. I've seen all that stolen from the electorate and effectively asset-stripped and destroyed over the last thirty years.

The appetite for Chinese imports has to slacken in the UK. Presumably elsewhere also. This is bound to have implications in China. The development of the Chinese domestic market provides opportunity for China but suffers an intrinsic problem, it too has limits built into it.

China is following the same track as the West following the Industrial Revolution, just on a faster basis, accelerated. There is no real reason not to expect them ending up at the same terminus as the West. Just trying to produce more and more of the same basic goods using ever larger economies of scale and ever higher efficiency is a dead end. It doesnt matter how it is packaged up. There are only two escapes out of the terminus. One is technology based products and the other is cultural based products. Obviously some basic goods and production such as food are needed and remain. But even with food you can see the problem - 13 percent, from memory, used to work on the land here 100 years ago, now it is about a quarter of that. It is fundimentally a case of dimishing returns and diminishing opportunity.

The backbone of China's model is to take old products from the west and reproduce them using cheaper labour. It is hardly innovation, it simply follows a nineteenth century plan. There are other sector which are innovative but the replication of the wests old production remains the backbone of economic activity. It cannot last as a strategy.

In the meantime before the logical conclusion is reached China will continue to suck work from the West to China and continue to cause problems in the West. Any chance of growth in the West has to focus on technology and culture(or lifestyle). Or to put it another way difference. The focus, by and large, in the West is on the wrong area, mainly on doing things more efficiently all the time. Until that is resolved problems will remain.

But by all means keep on the same model and sliding down the curve.

bravenewflabby # 7

"But an essentially free market does not lead to restrained consumption - it tends to drive the other way - different 'owners' of finite resources will compete to drive down prices and lead to over-consumption."

Three observations:

1. The unhampered (the absence of government regulation; i.e., subsidies, tariffs, controls etc.) free market always leads to the most efficient use of finite resources and, of course, capital. That is what economics is; to economise.

2. Given the above statement, it would appear that you favour higher prices. Nice!

3. Please elaborate on how lower prices would necessarily lead to over-consumption?

glanafon # 20

"But even with food you can see the problem - 13 percent, from memory, used to work on the land here 100 years ago, now it is about a quarter of that. It is fundimentally a case of dimishing returns and diminishing opportunity."

Very Ricardian, but wrong! I would advise you to have a look a George Reisman's Capitalism: A Treatise on Economics which repudiates the above statement.

http://www.capitalism.net/

(I forget which chapter it was, but I will look it up and reference it if you so desire.)

JadedJean # 19

"I've seen all that stolen from the electorate and effectively asset-stripped and destroyed over the last thirty years."

Very moving! However, you still haven't answered the question at # 18.

Stephanie,

deconstruction job:

How much has the financial crisis changed the global economy? The answer might be: "less than you think".

You are conflating two partially connected concepts: the financial economy and the global economy. Underlying everything is real trade in real things and real services. The financial froth and dross has become almost entirely disconnected and incidental to the real World of trade in goods and services. The only point of contact is the settlement of bills and this is the proper role of the financial community.

Many respected economists think... I can't resist refuting the idea that they 'think' productively, logically or rationally. Simply on the basis of recent history if economics was a useful subject that might warrant respect should it not have foreseen the crisis and prevented it? Thus I contend that the use of the words 'respected' and 'think' without a negative is logically erroneous and false on the basis of fact. And frankly these 'respected' economists should quit and get a useful occupation for they have been abject failures as economists (if that there is any 'subject' as economics that can possibly justify its claim to be proper subject.)

by keeping interest rates low, all those savings helped to underwrite a massive lending boom and asset price bubble in the West

This I do not disagree with - but it is a little peculiar that an economist has just noticed it might be a problem having spent a decade or more claiming it was either unimportant or even beneficial. I recall making the point explicitly in writing to Mervyn King and being told in response that it did not matter as all he had to do was to manage UK interest rates to meet the 2 percent CPI target. (Incidentally this is one of the several 'charges' that in my view makes him unfit to run the Bank.)

I would also not disagree with you summary of the Chinese and sovereign wealth rich countries - however you have ignored on of the main drags on the UK economy that we are both responsible for, and responsible for perpetuating, and thus prolonging the recession and delaying the recovery.

I am referring to the propping up of quasi 'bankrupt' companies that possess title to land banks etc.. If these companies were not being kept afloat by zero interest rates and bailouts then the normal processes of bankruptcy would revalue their assets downwards and provide them to the market so that the building industry etc. could restart. What you and you fellow 'respected', 'thinking' economists are doing by the insane zero interest rate policy is to continue crippling the Nation and delay recovery.

Economists seem to wilfully not understand the essential role of bankruptcy in recovering from a credit crunch (and other economic disasters).

It is also true that the absurdities of the gigantic multiplier effect of synthetic financial instrument creation has destroyed most if not all value in money. How much is it now AIG alone now admits to - 570 Trillion US Dollars - the total must be at least twice this (mustn't it?) - an unimaginable 1000 (or more) Trillion US Dollars - these contracts need liquidating and we cannot recover until they are and the quickest way is to liquidate the companies concerned (whilst protecting savers to at least 25 million US Dollars). If this is not done the overhang of the insanity created with the advice and connivance of economists (respected or otherwise) the problem will remain - bankruptcy is what is needed and as quickly as possible!

John_from_Hendon # 24

"How much is it now AIG alone now admits to - 570 Trillion US Dollars - the total must be at least twice this (mustn't it?) - an unimaginable 1000 (or more) Trillion US Dollars..."

John, are you sure these figures are right?

If you have growth fuelled on debt (both consumers and producers) then surely it is not hard to see that a lot of people aint going to get no justice tonight.

Time for some armageddion thoughts:

In the summer of 2008 Georgia essentially declares war on Russia. A lot of Russians lost a lot of money on giant ponzi schemes. Russians don´t spend long analysing the BBC, the Financial Times or the Daily Mail. Therefore they can work out who told the Georgians to attack South Ossetia, and who sucked away all their money.

Russians hit the Georgians where it hurts and tells the Ponzi Masters that they want their money back. Everyone plays dumb - but all remember Litvinenko. TARP gets passed and 9 months later no-one in the US has any idea what happened to $350 billion of TARP funds.

The Chinese are sitting on $3 trillion of US T Bills and everyone thinks that China is stuffed. Break the $ and you lose. Maybe they are just as smart as Goldman and can also make money seem to appear in 2 places at once. Take a look at China/Brazil and China/Russia.

So,if you really think that "The trouble is that if the excess savers do return to their old habits, the international financial system doesn't have a good way to make them change course" you may find policies have already been enacted.

#21 Libertarian Kurt

I made the mistake of referring to the "free-market", and even claiming that it is flawed, without defining what i mean by the "free-market". I'm not even sure that it is possible to provide a definition. There are some things in this universe that are natural - the minerals in the ground, the laws of nature etc, the motion of the solar system. These are the only things that ultimately limit our standard of living. In addition, to 'help' us, we have invented notions such as 'property', 'money', 'legislation', etc. Now the question is, which of these things do you define as 'government', and which do you define as 'agreed human consensus'? For a market to exist (free or not), we at least need the notion of property and some kind of legislation to create trust, else I could just go and steal a farmer's produce without having to worry about trading anything with them. However, presumably we could have a basic form of legislation to enforce trust, as well as a notion of 'property', and then just have bartering on the basis of agreements between individuals - perhaps this is what you would refer to as a free market (notions such as bonds etc could be made by individuals or freely formed organisations on the back of that).

Well I'm happy to accept that as a preliminary definition of a free market. And I don't think that it can lead to optimal physical resource usage without reaching further consensus - you could call that further consensus 'government interference'.

Here is an example: we have a finite amount of oil in the ground. We use it for different tasks, including "driving ambulances" and "distributing posters of celebrities". Now I think it is pretty reasonable to argue that "distributing posters of celebrities" is not really necessary, although maybe you could argue that it adds value to our lives. But the "real" cost of this is that we destroy oil that we cannot then use again in the future should we really need it for something more important. So in an optimal world we would be careful of using finite resources of frivolous uses. Now maybe you think that our burning of oil for frivolous uses such as "distributing posters of celebrities" is all because of an interfering government not allowing the free market to work properly - but I think you'd be hard pushed to justify that.

Maybe on the other hand you think that it is arrogant of me to assert that "distributing posters of celebrities" is less valuable than "driving amublances" - and that it is the job of the market to actually even define value. Well that is perhaps where we actually disagree - I do not see the market as always being a good way of assigning value to things, as testified by the amount of junk people buy and consume for no real good reason on a daily basis. In fact I think that the difficulty of defining "value" for things is probably the root cause of many of our problems.

The simplistic answer (and one that may yet come about) is to forgive the debt. Agree a line in the sand and let the 'good times roll'. However, that is not an answer and the same debacle will be repeated.

The harder option is to use this crisis to critically re-appraise, country by country (for the problems identify themselves differently in each country) what the social, political and economic objectives are. Only then can economic and political structures and plans be put in place to achieve them. The major problem with such a plan in the UK lies with our politicl process which lends itself to administrations only concerning themselves with short-termism.

Whisper it quietly (but very quietly) but I agrre with JJ in so far as the public utilities are concerned. I deeply regret the privitisation of the utilities and see no strategic gain as having been made. However, I also abhore the political games, in terms of funding etc., that have been played by both of the major parties in their planning. I agree with glanafon that there is neither the funds or political will to re-nationalise them. Hence we need a stronger and long term administration of the ultilities than that provided presently by the Ombudsman process. BUT I must totally disagree with JJ concerning a centrally controlled planned economy, that way lies only stagnation and rampant beaurocracy.

In the West we desperately need to re-evaluate the relationships between wealth (both private and national), money and labour. To my mind we need to find a way of putting money back into its rightful place as the oil of the economy.

bravenewflabby # 27

FREE MARKET AND VALUE

The Free market is a summary term for an array of exchanges that take place in society. Each exchange is undertaken as a voluntary agreement between two people or between groups of people represented by agents. These two individuals (or agents) exchange two economic goods, either tangible commodities or nontangible services. Thus, when I buy a newspaper from a newsagent for fifty pence, the newsagent and I exchange two commodities: I give up fifty pence, and the news dealer gives up the newspaper. Or if I work for a company, I exchange my labour services, in a mutually agreed way, for a monetary salary; here the company is represented by a manager (an agent) with the authority to employ people.

Both parties undertake the exchange because each expects to gain from it. Also, each will repeat the exchange next time (or refuse to) because his expectation has proved correct (or incorrect) in the recent past. Trade, or exchange, is engaged in precisely because both parties benefit; if they did not expect to gain, they would not agree to the exchange.

How can both parties benefit from an exchange? Each one values the two goods or services differently, and these differences set the scene for an exchange. I, for example, am walking along with money in my pocket but no newspaper; the newsagent, on the other hand, has plenty of newspapers but is anxious to acquire money. And so, finding each other, we strike a deal.

Two factors determine the terms of any agreement: how much each participant values each good in question, and each participant's bargaining skills. How many pennies will exchange for one newspaper, or how many Girls Aloud posters will swap for a Robbie Williams poster, depends on all the participants in the newspaper market or the celebrity poster market on how much each one values the posters as compared to the other goods he could buy. These terms of exchange, called "prices" (of newspapers in terms of money, or of Girls Aloud posters in terms of Robbie Williams posters), are ultimately determined by how many newspapers, or celebrity posters, are available on the market in relation to how favourably buyers evaluate these goods. In short, by the interaction of their supply with the demand for them.

Any clearer now?

Above:
"Two factors determine the terms of any agreement: how much each participant values each good in question, and each participant's bargaining skills."

Wrong. The third factor is how much they trust each other to either pay or deliver. The above makes sense for small, instant transaction, but as soon as you get to the situation that you can't fit your wares on your wooden cart you took to the market, you rely on a 3rd party to authorise and enforce, just to be able to make a trade.

(..the gurgling sound of free market ideology flushing down the toilet)

#27

You are talking about free price systems.

http://en.wikipedia.org/wiki/Price_system

The problem you are trying to elucidate is that free price systems inadvertently encourage scarcity, causing society to seem irrationally fixated on the wrong things. For example, why is society seeking to encourage distribution of music and video via plastic (DVD,CD) media through copyright enforcement, when music and video can be more easily distributed via BitTorrent etc? Why are we still using oil when solar and wind are in abundance? Why do we restrain the production of diamonds in order to preserve their value and thus make industrial production more expensive?

One alternative I advocate is:

http://en.wikipedia.org/wiki/Technocratic_views_of_the_price_system#Views_of_the_price_system

You might also like this:

http://en.wikipedia.org/wiki/Thermoeconomics

The changes to the World's economic landscape are more fundamental than in minor paradigm shifts.Over the last 30 years, first the Chinese under Deng changed in 1979, and were determined to integrate into the Global Economy as well as the Global Capital Markets. Then, India learnt from their East Asian cousins, and changed in 1991. They were as determined to integrate into the Global Economy as well as the Global Capital Markets. Finally, with the collapse of USSR, Eastern Europe changed as well in 1991. They too were determined to to integrate into the Global Economy as well as the Global Capital Markets.Whereas China & India were integrating based on real world developments, E Europe was able to integrate based on financial world alone - with support from W European Capital. The financial world was divorced from recognizing the real world changes - as it often does. The exuberance to accept sub prime credit as Investment Grade was a phenomena not confined to US housing alone - it extended to the Sovereign domain as well. Which is why the Rating Agencies have so much mud on their faces - because they also became divorced from the real world. In the middle of all these meltdowns, we have to look at the positive outcomes for the future. London has emerged as the preferred Capital center not only for the English speaking world, but increasingly for Europe as well as India and the Gulf. The G20 recognised the new emerging world order - where we can now comfortably play cricket and baseball with Australia, India, S Africa, and UK as well as USA, Canada, Japan and Korea. The new formations within G20 is the way to create opportunities for the future. Europe will become more federalised - with one currency, one language, one religion, one Head of State etc. Fortunately, unlike the G7, while the Europeans had the majority, in the G20, Cricket (& baseball) is back. The agenda can change - and be the gamechanger we can look forward towards. London after all remains the eternal capital of Planet English.

FrankSz (#32) Sadly, human comunities don't appear to gravitate towards a more benign entropic state when left to natural arket forces, they appear to polarise. The more able flee because of the pressures exerted by differential fertility, i.e. the more able with lower birth rates are crowded (and ultimately driven) out. In inner UK cities it's often decribed as White-Flight. What one is left with is indeed more disorder, i.e crime and unemployment, urban decay.

Why did Michael Young criticise Blair for abusing the term meritocracy?

Why so little media coverage of the silent service throughout the Credit Crunch?

Why an ECB and ...a Bank of England?......

#25. LibertarianKurt wrote:

"John, are you sure these figures are right?"

No, but I don't think anyone who says they know will be right...

I was told the 570 tn figure by a banker from the city who claimed to have seen it.

And as to the 1000 tn: First there is the other side (counterparty) to the AIG deals and that must double the figure and I have rounded it down. Then my guess is that the figure may be much higher, but not too much higher as there must be some (perhaps considerable) cancelling out.

Has anyone any better (more accurate) information?

DON'T FEED THE ANARCHISTS

John_from_Hendon (#24) "What you and you(r) fellow 'respected', 'thinking' economists are doing by the insane zero interest rate policy is to continue crippling the Nation and delay recovery.

Economists seem to wilfully not understand the essential role of bankruptcy in recovering from a credit crunch (and other economic disasters).

It is also true that the absurdities of the gigantic multiplier effect of synthetic financial instrument creation has destroyed most if not all value in money. How much is it now AIG alone now admits to - 570 Trillion US Dollars - the total must be at least twice this (mustn't it?) - an unimaginable 1000 (or more) Trillion US Dollars - these contracts need liquidating and we cannot recover until they are and the quickest way is to liquidate the companies concerned (whilst protecting savers to at least 25 million US Dollars)."

Apart froim feeding LibertarianKurt's (Austrian School) anarchism, don't you answer your own question above? Underwriting insurance does not mean the policies will have to be paid out on unless the underwritten businesses (many of which will be what remains of the manufucturing sector) go to the wall? If these giants (like AIG, GM etc) are not bailed out (albeit by the public ultimately as few private investors would touch them given so many purchases have been based on securitized liars' loans to the feckless) presumably one would have just seen even more carnage in The City/Wall Street, and given that these centres, venal though they may be, are central to these economies, what choice was there? It's Hobson's Choice surely? Isn't this more or less how Darling kept presenting it? It doesn't excuse how he, Brown and many others got us into the mess, nor does it vitiate your other analyses (though what you want is not really deliverable outside a Planned 'totalitarian' economy as I've repeatedly said, as I see it), but it does explain why they've taken the line they have - i.e because the alternative is just far far worse.

LibertarianKurt's position is 'romantic', Trotskyist, pipe-dreaming anarchism. The revolutonaries were sent into Russia in 1917 as anarchists to get the Tsar off the German Eastern front remember. It took Stalin to put a viable government in place after Lenin's death. That was the beginning of the end of Jewish Bolshevism in the USSR, and perhaps, the beginning of the end of the USSR ;-)?

22 Lib K

As there are a 1000 odd pages a reference would help.

Perhaps there is a language confict.

If you start with 13 percent working on the land and end up with 3 percent and much the same output then the 'efficiency' has improved. 'Efficiency' as far as I am concerned is more unit production for the same labour. You have probably ridden a geometric curve.

The increase in 'efficiency' cannot contine because the curve will plateau. I have referred to that as diminishing returns. The next step is to change the game to get more efficiency, eg hydroponics, or conventional growing under glass - greenhouses the size of several football ptiches, being built now in Anglia. More 'efficiency', but sooner or later there is a plateau. At every step there is less opportunity to gain efficiency.

The outcome is - more technology is used to replace labour. Or a move to producing something more seen valuable, ie less efficiently produced. An example of this would be a high priced food sold as a health food which still needs hand picking.

At present in the West standard products are produced efficiently, so one of the obvious steps to make a gain is to have them produced in a low labour cost zone.

The alternative is new products based on new technology.

The other alternative is producing something which has a percieved value and a premium price, something which is more scarce.

China will also run into this scenario given time. Because the whole conventional model is based on the concept of ever expanding efficiency. As oversupply inevitably occurs as an end point then obselecence has to he built in to encourage consumption of the same goods again. The logical outcome is products are obselete before you have left the shop, and this is happening with some goods.

You are looking at the diversion of production groups.

- Standard production which has reached a plateau often referred to as mature prodcuts or technology.

- High technology or novel technology, driven new products or production techniques which are either notably inefficient (novel) significantly more efficient, change of state of production.

- Or the deliberate development of products in the other direction, low numbers, premium prices relatively speaking, in mass production terms inefficient production. This can use high tech but the objective is the inverse of the conventional model, you use scarcity to maintain prices. This is the inverse of the mainstream approach where production volumes are used to get ever decreasing unit prices and price comparison is used to force prices down.

The three groups are notably different in their mindset and demand completely different skills. Conventional production is everywhere so debased, technology is the next strategy leant on and therefore very competetive, the scarcity model is seldom exploited but has the best long term survival possibilities. It is primarily marketing lead and flexible. It is not price sensitive relatively speaking. It includes a strong element of culture in the product.

We consider there is no point in producing price sensitive products in the West because you cannot possibly hope to increase efficiency enough to compensate for low labour costs. We have looked at mass production in low labour zones and decided it is pointless, you lose the very thing you are producing, scarcity. However I would point out this is not a niche product output whilst it has niche charcteristics - because the production can float to any area, the product being sold principly is culture which is, relatively speaking, an indefinable in hard charactersitics. The process is replicatible in many areas so a network develops. This is a high tech global medieveal model.

Whilst the long term projection for low labour zones has to been questionable - as it is basically an accelerated passage along a previously trod track, in the face of low labour zones undermnining conventional production we consider any continued attempt to produce conventionally in the west intrinsically flawed as a strategy, it can have nothing but problems. Many of which are surfacing right now. And establishment policy of trying to ring fence or prop is just procrastination, well intentioned - and I hope it works but I have grave doubts about it as a strategy.

At present my expectation is one of continued underlying decline in the West unless new ways of working are adopted. This will probably result in permanent unclass of unemployment which the establishment will not be able to do anything about. Within a generation the same problem will probably occur in the East, maybe a little later. That is the end game of the Industrial Revolution which feeds on technology differentials and efficiency expansion which will disappear. Basically the Industrial Revolution has its own bubble characeristics but runs on a very long cycle. The cycle has been extended artifically by transplanting prodcution further and further from high labour cost zones. For example - China is already losing prodcution to lower labour cost zones, that is how aggressive the mechanism is, and the process continues to accelerate.

I will endeavour to try to read your link but I expect it to be wrong or skewed in its prespective. Or right but not relevent within my framework. There is nothing accidental about what we do.

Regards

Addendum (#36) Entryism won't work in the PRC - they'd be easily spotted!

#7 "I am a scientist, and I was reading an article recently about the fact that Indium Tin Oxide is likely to run out in a decade or two."

"Indium ranks 61st in abundance in the Earth's crust at approximately 0.25 ppm, which means it is more than three times as abundant as silver, which occurs at 0.075 ppm."

As a scientist, how do you reconcile the two statements above ??

Humans have been mining silver since pre-history !! There's still plenty around !! Since Indium is *three times* as abundant as silver, how can there be a shortage of Indium in a decade or two ?? There wouldn't *be* a shortage of Indium !! However, there may be a shortage of easily mined (read stripped and robbed) Indium from poorer countries for the rich countries to exploit !! Perhaps the article you read meant that they will be running out of victims to rob soon and that something has to be done about it !! Another "regime change" perhaps ?? Or an outright colonisation and enslavement ?? Both methods are not unknown in history !!

*THIS* is what is wrong with US/colonial style "free market economy" !! The freedom to rob others of their heritage !! If they put more effort into getting at the less easily accessible Indium ores, then they will still have plenty of Indium available well into the next century !! After all, the mining of silver lasted 70 centuries and is still ongoing and there's three times as much Indium as there is silver !! As for Tin, there's still zillions of tonnes of that stuff around. I *know* because I ran a couple of Tin mines once !! And if there is a shortage of Oxygen, then we wouldn't be in much need for Indium Tin Oxide, will we ??

Please check your facts *carefully* before publishing !! No self respecting scientist will publish hypotheses as facts or draw conclusions from incomplete data !!

#13 "If you could list all possible actions, list all possible contexts, and assign a probability of occurrence for each action in each context, for a given population, then I think you could call this a "culture"."

Good God !! A *Truth" table !! This sounds like a more scientific method than mere stating that Indium will run out soon because some article said so !!

ishkandar (#40) Once past three variables you're venturing into non-linear Dynamical Systems territory. Even most intelligent people can't even hold two variables in mind.

#39 ishkandar - the main point of my post is that there are finite resources which we consume frivolously, so it doesn't actually matter whether you agree with that article about indium tin oxide per se. feel free to change the number of decades in my argument to a thousand. the article i read, if you care for it, is at "http://www.spectrum.ieee.org/jan09/7091". but the details are tangential to the discusssion.

#29 LibertarianKurt. Well you've stated your definition of a free market. So to spell it out clearly here is an example of where a free market would not lead to optimal use of resources: the heroin market. I don't think that using finite resources like oil, metals etc, to help the growth and distribution of heroin for recreational use is an optimal use of valuable resources, despite the fact that heroin would attain 'value' on the free market.

#31 FrankSz - I'm not sure what the optimal system of governance is, but what I am sure about is that a free market is not going to be optimal, despite its advantages in terms of personal liberty.

LibertarianKurt (#18) "Now, what is contradictory about this statement, JJ?"

I've said before that you need to understand a) that Natural Language is intensional b) the Principle of Charity and c) that Independence/Relationship like identity and same/different are tricky notions for some who hail from the Pale (or is it Transylvania?). The state is a collective which works in the interests of its constituents. Haven't you seen BEE MOVIE? It's the Austrian School genetic narcissistic mutants who are the 'ousiders'? Jerry Seinfeld, Christina Steinberg and Cameron Stevning aren't fooling anyone round here - It was tried in ANTZ too. We're on to your Wall Street anti-statist propaganda. Are you guys behind Colony Collapse Disorder too? ;-)

ishkandar # 39

"However, there may be a shortage of easily mined (read stripped and robbed) Indium from poorer countries for the rich countries to exploit !!"

"*THIS* is what is wrong with US/colonial style "free market economy" !! The freedom to rob others of their heritage !!"

Another example of Marxian (LTV) anti-capitalist sentiment which misleads the casual reader into believing that capitalists exploit or rob the "poor" workers (it matters not whether they live in richer or poorer countries) in their pursuit of profits.

What the inference here fails to grasp is that wages paid to workers is a DEDUCTION from what was all originally profit; not the other way around. The emergence of capitalists leads to the phenomenon of wages/salaries paid to workers which raises the standard of living of those workers.

No-one is being robbed; everyone benefits.

Individuals'actions will eventually rebalance the world economy....

It's partly a question of psychology. China is playing catch up with the west and the mind-set is similar to that of British people before the introduction of the welfare state. People save as much as they can so as to have something to fall back on when they can no longer work.

People also save (or look to repay debt)when they are not confident of an income which is what is happening here in the UK now. Interest rates hardly enter into this type of thinking.

If China want to stimulate their internal market and raise living standards then the introduction of a rudimentary pension system would help. People might then be more willing to part with at least some of their hard-earned cash. Then China doesn't need to export so much.

I agree we in the UK need to find something to export. All I can see is that we have some technical expertise to offer and education in general. China is fast catching up though.

What we could be doing in the UK is changing what we manufacture from things like cars where the market is more than saturated to say wind turbines or other green technologies. This know-how could also then be exported. We should be able to do this if we were willing to invest in the right things and to become more adaptable.


We are very good at hand-wringing and moaning that life isn't fair. This isn't to say that those who have abused our trust shouldn't be brought to book but we do need to remember how lucky we are when so much of the world lives in dire poverty.

The sooner the imbalances are corrected and people begin to realise that there would be plenty of resources in the world if some were not so greedy, the better off we'd all be.

LibertarianKurt (#44) ""No-one is being robbed; everyone benefits."

How about consumers? What about all the semi-illiterate people who signed up to as sub-primers whether for homes, cars, credit and even more venally, the little kids enticed to buy expensive orange lollies in 'The Apprentice'. Caveat Emptor? Their 'choice'? What you do is conveniently overlook the true nature of human diversity. It truly is an inexcusable (predatory) blind-spot.

bravenewflabby # 42

"I don't think that using finite resources like oil, metals etc, to help the growth and distribution of heroin for recreational use is an optimal use of valuable resources, despite the fact that heroin would attain 'value' on the free market."

Your use of the example of heroin as a freely tradable commodity to advance what appears to be a refutation of free market principles is a poor one because production, possession and supply of the recreational use of heroin is currently, according to the law, illegal. Therefore, the optimal use of oil and metals as factors of production of heroin is a non sequitur.

JadedJean # 46

"What about all the semi-illiterate people who signed up to as sub-primers whether for homes, cars, credit and even more venally, the little kids enticed to buy expensive orange lollies in 'The Apprentice'. Caveat Emptor?"

On the contrary, what YOU have overlooked is that it was government intervention and regulation which forced banks/financial institutions (particularly in the US; CRA 1977; Freddie Mac and Fannie Mae etc.) to lend money to anyone who could just about write his or her own name!

This is YOUR scotoma.

#47 LK

The possession of heroin being against the law is an example of
government interference in the free market. And in my opinion it is a welcome one. I only wish that they could be more effective in closing it down.

However, you would prefer a free market where people would be free to grow and exchange heroin.

I argue that this would be a suboptimal use of physical finite resources,
and therefore that this disproves the notion that a free market is always the optimal way to manage use of resources.

LibertarianKurt (#48) "it was government intervention and regulation which forced banks/financial institutions (particularly in the US; CRA 1977; Freddie Mac and Fannie Mae etc.) to lend money to anyone who could just about write his or her own name!"

Government intervention passed the 'firewall withdrawl act' in 1999 under pressure from Wall Street so all the kind-hearted, philantropic bankers who'd been traumatised for years by not paying themselves astronomical bonuses and pensions could have that cruel oppression relieved and save on psychiatric expenses and stop beating their wives. The same was done to them in the Pale of Settlement many decades before by cruel anti-freedom mongering statist Tsars and their secret police and local persecutors, so they fled to London and then NYC.

I see what you mean. The new boys at the US Treasury have tried this therapeutic line with respect to the PRC. If it wasn't for the oppressed Chinese savers, and workers not having the freedom to demand higher wages, there would have been no need to prey upon all the poor Black, Hispanics and White underclass in the USA. Paradise could have been sustained.

Isn't the intensional nature of Natural Language a boon to anarchists? Much better than that nasty empiricist gobbledegook ;-)

Our economy will never recover unless we address some of the imbalances built into it by politicians over the last 20 years or so. We are part of the European Union and yet we're not part of the Euro, so our exports always cost more because most of the time the pound is worth more than the Euro or the Dollar, Where is the sense in that?

Because we are not signed up fully to European employment protection laws our workers are so much easier to lay off than any other Europeans who work for the same multi-natioal companies, thats all well and good when things are fine, but things are not fine now are they? I wonder how many workers in the automotive industry will loose their jobs here in relation to those in mainland Europe for example?

We allow the free movment of labour within the European Union yet because the Pound is higher than the Euro we become a magnet for economic migrants in a way other European countries don't have to cope with. Which is fine if you are an employer because you get lots of cheap labour, but most migrant workers send most of their wages home or save it up so that they can go home after 5 years set up for life, and who can blame them? Meanwhile most of us are mortgaged up to the eyeballs and have no money to spend in the shops on goods and services.

Many of the things that made our country an attractive option for employers in the good times are exactly the same things that will drop us further down the hole when things go bad.I am not trying to say what way we should jump in relation to Europe, but I think we should make up our minds and go one way or the other, because this fudged middle way that is the best of nether worlds is not something that can be sustained anymore.

Could I make the point that even those people who created the free market model of economics do not see it as descriptive of the real world.
It assumes all sorts of things that clearly do not exist in the real world such as perfect availability of information and infinite possible suppliers to the market at anyone time. It does not take account the effect of a deal on third parties such as pollution or indeed the fact that goverments cannot allow the banking system to fail. Even when the bankers have mispriced risk, the most important of commodities in the capitalist system. It is only ment to broadly contrast with something like a goverment monopoly. In the real world only those states who have no other choice subject their citizens to the unfettered free market. Europe and the USA subsidises farmers, China fixes its currency and India restricts entry to its retail sector. They do this because they believe it to be in their national interest. But also because they are big and powerful and so can largely ignore outside protests.
In short those think that the world problems can be solved by the "free market economy" are as unrealistic as the most Utopian of socialists.

In a global economy only those capable of offering (and exporting) things other nations want will survive in the long run. This country lost this concept some years ago and/or wrongly believed financial services were the answer!

'Leanomics', a much wider and far more holistic form of 'economics', looks at community factors too ... such as individual well-being and community contentment, as well as the sustainability of enterprise and the environment. For example, one simple Leanomics test, called the "BUTS" test, can create a great deal of insight by looking at debt alongside the capability of the community to pay it back.

B=Borrowing
U=Untapped talent
T=Trade deficit
S=Stress

Trade deficits, untapped talent and stress all negatively impact on a nations ability/capability to pay back debt, and what do these look like at the moment ? I'll give you a clue - terrible!

We have got into huge debt, sold the family silver, demoralised people, stressed people out, created a broken society, overburdened our children (and our children's children), and still have the 1940's baby-boom to come (with a poorly funded pension system).

Nothing has changed, it's just becoming increasingly clearer (and/or harder to hide!) ... I think Mr Tweedy (comment 1) has summed up the situation very well ... just to re-iterate ...

" ... If Germany, China and Japan invested their surpluses in their own economies, and they successfully uncoupled from the US and the UK, it would leave the US and the UK high and dry.

Without foreign investors to buy gilts and treasuries, our governments would struggle to afford their spending plans, and we would struggle to afford our imports.

Britain and the USA would need to find exports to sell to China, Germany and Japan. But just what would Britain sell? I can't think of anything, seeing as exports of bank loans, insurance and defence manufactures were Britain's only trade surplus during the years preceding the economic crisis. North Sea oil is not what it once was.

The search continues for Britain's magic exports" ...

... and as I also raised in one of Robert Peston' previous blogs ...

" ... so tell us the robust plan to pay back all the extra debt we're taking on and at the same time create 21st century products and services that ...

1. People around the world want and are willing to pay for
2. Will create millions of jobs in the UK, and
3. Will systematically reduce our trade deficits and national borrowing ... *

Next question ... how are we nurturing and accelerating creativity/innovation to develop these new products and services?

Next question ... how are we adopting 21st Century leadership and management to enable both the above?

I've been in meetings with Ministers and the CBI - and guess what ... when difficult questions like these are asked they are all 'weighed, measured and found wanting' ..."


But are you really surprised ? ... We can't trust them with their 'expenses' ... never mind the 'economy' !


David Clift, a Future 500 Leader, and Poweromics* blogger


* Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed.

I would like to throw out a question.
All these financial instruments, which paid out when companies failed, led some to worry that another large failure. such as lehman brothers. would trigger a domino effect. I always assumed that these instruments
a, are no longer beening issued.
b, were mostly of relatively short duration i.e up to a year.
So though the mortgages and related toxic assets still exist a lot of the systemic risk is now largely gone.
Are these assumptions correct ?

bravenewflabby # 49

"The possession of heroin being against the law is an example of
government interference in the free market. And in my opinion it is a welcome one. I only wish that they could be more effective in closing it down."

You seem to making the argument against the free market from a moral standpoint rather than an economic one.

Whilst I do not personally advocate the use of drugs for recreational use, I do not have the right to force my morals via government legislation on other peoples' choice to use them or not. The government's criminalisation of recreational drug use actually causes more problems than it solves.

#53

WTF? Leanomics?? Peddle this garbage elsewhere. You insult my intelligence.

#42

Yes but one point I made was that you are conflating "free market" with "free price system". I suppose however one necessitates the other.

FrankSz # 56

"WTF? Leanomics?? Peddle this garbage elsewhere. You insult my intelligence."

Now, now, Frank. Don't get emotional, everyone is entitled to an opinion.

;)

I was surprised the article did not mention exchange rates. These are the obvious classical economics way of redressing imbalances. While I do understand that capital flows reduce or negate the exchange rate mechanism, it is hardly realistic to write an article about rebalancing which ignores the significant devaluation of sterling over the last year or so. This may not have had a dramatic effect on exports, but there is evidence of import substitution, and as markets do pick up it would not be unreasonable to expect UK service industies in particular to secure more overseas work. And perhaps some rekindling of manufacturing?
It is surely also the case that much of Germany's surpluses are spent propping up weaker members of the Eurozone, rather than UK or US borrowers.

#55 LibertarianKurt

Actually I am not arguing against heroin on directly moral grounds (although maybe I am indirectly, as ultimately all these debates rely on some ethical standpoint), I am arguing with the following logical structure:

(1) PREMISE: Using up any finite resource (such as oil) to grow and distribute heroin is not an optimal use of that resource.

(2) FACT: A free market would lead to the use of finite resources to grow and distribute heroin.

(3) CONCLUSION: A free market is not always an optimal way to manage resources.

I accept that the libertarian argument for personal choice is very important, but we are discussing optimality not ethics directly.

And yes, governments often have problems limiting the heroin market, but that is a separate debate. The main point is that if you accept my premise then you have to accept my conclusion. You don't accept the premise, but that is because we disagree on the way of defining "value" and "optimal".

#44 "The emergence of capitalists leads to the phenomenon of wages/salaries paid to workers which raises the standard of living of those workers.

No-one is being robbed; everyone benefits."

Have you seen the effects of the silver mines in Peru or the copper mines in Philippines ?? The wages paid to the workers are extremely poor to maximise the profits of the owners and the resultant mess left when the mining is done creates ecological disasters that last for generations and will never be addressed by the owners because there is no profit in it !!

Being a capitalist does not mean condoning the destruction of another area in the name of profit. A little less profit and a little more thought to doing less damage to the ecology helps to go a long way towards a win-win situation.

Meanwhile, try telling the people living in villages bordering the mine(s) in the Philippines that they have a win-win situation even as they cough their lungs out in front of you, poisoned by the toxic dust stirred up every time the wind blows !! Try telling the sweatshop labourers that they've never had things so good and that they should be eternally grateful for the pittance they get !!

Capitalism is good; rapacious capitalism is destructive !! I fully support Fairtrade(tm) !!

#45 "What we could be doing in the UK is changing what we manufacture from things like cars where the market is more than saturated to say wind turbines or other green technologies. This know-how could also then be exported. We should be able to do this if we were willing to invest in the right things and to become more adaptable."

Absolutely agree !! This current crisis has destroyed a lot of currently held perceived wisdom !! Change will come when the people grope for a more workable solution. Any attempts to recreate the ways of old will only produce more and bigger setbacks !!

ishkandar # 61

"Have you seen the effects of the silver mines in Peru or the copper mines in Philippines ??"

Do you know who owns these mines? Also, and more importantly, who owns the land bordering on the mines?

In #45 janchild proposed "What we could be doing in the UK is changing what we manufacture from things like cars where the market is more than saturated to say wind turbines or other green technologies. This know-how could also then be exported. We should be able to do this if we were willing to invest in the right things and to become more adaptable."

But while ideally true does this not overlook a factor that has changed, arguably since the last recession. I invent the "ultimate widget" and set up Ultimate Widgets 2009 to manufacture and sell these "must have" products. Now by skilful research I know how much I can charge for these, and know that manufacturing in the UK will cost me another figure, from which I can calculate my profit per widget. However, I also know that I can manufacture the same product to the same specification elsewhere (for the sake of argument let's call the place China) for rather less, so even after shipping costs my profit per widget will be rather more. On that basis, manufacturing anywhere but China would be folly.

It was rather different in 1909, when my great grandfather set up a company to manufacture and sell the Ultimate Widget 1909. Limitations on communications and transport alone made overseas manufacture a non - starter, without having to take into consideration whether overseas manufacture was viable to start with, which it probably wasn't.

Manufacturing costs aside, UK manufacturers may struggle to find suitable personnel from the graduates in Media or Sports Studies* to be able to consider local manufacture on the first place.

So I can make money from my development of the Ultimate Widget 2009, but the other principal beneficiaries are the workers who make them, and they are not in the UK.

The virtues of the "free market" are regularly extolled, but it is always worth applying the Cui Bono? test. Who benefits? Er, the free marketeers, not the likes of you and I who have to inhabit a world of their creation.

Remember the wise words of Edward, 1st Baron Thurlow (1731 - 1806) who said "Corporations have neither bodies to be punished, nor souls to be condemned; they therefore do as they like."

I do not expect anyone or any country to take any action that benefits the UK unless it benefits them even more. I would like to be wrong about this, but will take a lot of convincing.

Being a simple soul** I imagine there are counter - arguments to all the above, and I await their appearance with interest.

* I forget who it was that said "never do a degree with the word "studies" in it". It might be an over - simplification but somehow it still sounds "right".

** i.e. a non - economist.

bravenewflabby # 60

"You don't accept the premise, but that is because we disagree on the way of defining "value" and "optimal"."

I cannot accept your premise because you have not yet defined what you think value, in a free market exchange system, is.

radiowonk (#64) "I invent the "ultimate widget" and set up Ultimate Widgets 2009 to manufacture and sell these "must have" products. Now by skilful research I know how much I can charge for these, and know that manufacturing in the UK will cost me another figure, from which I can calculate my profit per widget. However, I also know that I can manufacture the same product to the same specification elsewhere (for the sake of argument let's call the place China) for rather less, so even after shipping costs my profit per widget will be rather more."

Are you mad (video) ;-)

Radiowonk # 64

Have you ever asked yourself the question WHY it is less cost effective to produce something (a widget!) in the UK, US or any other Western Economy than it would be in emerging Asian Economies?

#37 glanafon

"The other alternative is producing something which has a percieved value and a premium price, something which is more scarce."

That is just plain wrong. Many companies have and do operate very successfully in markets and with products that do just that.

Take the cosmetics and fragrance industry. Here we have a multi-billion market that whilst delivering tangibles is really selling hope (that you will look, feel, be, special etc.). The price of the products far far outweigh their costs purely because of the consumers value of the products benefits. Charge a lower price and the percieved value of the product is dimminished. The manufacturers know that, the retailers try an add extra value and the majority of customers know it.

Now let's look at the luxury car market. The price of a Rolls Royce has very little to do with its manufactured cost. Customers are willing to pay a premium price for a product that is matched and even surpassed by its competititors in terms of performance, build quality etc. Still today the Lexus suffers from being considered as an 'upstart' even though it can outperform Jaguar, BMW and Mercedes. Even though the maket for 'standard' cars is struggling

The whole entertainment industry is based upon this premise. Why do ballet and opera tickts cost so much? Why do people flock to Glastonbury each year (despite the mud)?

The problems with Western manufacture has far more to do with the greed of financiers than it really has with low labour costs. The focus should be open limiting and regulating the greed of the financial sector and the complicity of governments in making money 'without getting your hands dirty'. As The West is now finding out, cheap labour only provides a short term bubble. A bargain is a bargain but cheap will always be cheap. We have a very hard job on our hands to re-focus all sectors of the economy away from cost and back on to value.

Dear, economists.

I think that Brazil and Russia should get some financing from developed Economies like US,Europe,Asia for their large forests that make our world cleaner. Just because they don't produce much. One thing is to produce/export/satisfy needs of consumers, the other is to clean off the dirt from this planet and this is also important. People like breathing sometimes.

In #66 JadedJean asked if I am mad. (At least the blow is softened by ":)"!) Possibly so, but I'm not sure that the video told me why. Clarification might help!

In #67 LibertarianKurt asked if I had asked "WHY it is less cost effective to produce something (a widget!) in the UK, US or any other Western Economy than it would be in emerging Asian Economies?" Specifically no, but the easy answers are (a) a minimum wage structure, (b) overheads such as National Insurance and Pension costs, (c) a Unionised labour force, and (d) social policy legislation that forces an employer to recognise "employment rights" that ultimately cost *me* as an employer. (I make no claim that the list is necessarily complete.)

Now I might argue that having to meet these costs skews how I conduct my business, but in the end I also have to recognise that there is not much I can do about any of them. While a return to slave labour might prove be to my immediate advantage as an employer, I have to accept that not only is that not going to happen but that it would probably bring disadvantages if it did.

Sadly, a fact does not cease to be a fact solely on the basis that it is seriously unfortunate.

While the video was "interesting", so far I have not been able to work out how upgrading the educational system (in the US or anywhere else) could somehow offset differentials in manufacturing costs. To use the example cited, it would still be cheaper to manufacture DVD players in the Far East and import them.

I also noticed the use of the words "knowledge economy"; while obviously I have heard the expression more times than I can count I found myself wondering what it actually means. So far I have not been able to find a satisfactory answer.

The Plight of the Price System Lemmings
Stephen L. Doll
1991

Published in:

* Section 3 Newsletter January 1991, No. 89
* The Northwest Technocrat, 3rd quarter 1991, No. 324

For years, it was accepted that the little creature known as the lemming harbored some sort of unfathomable propensity for irrational self-destruction. Legend held that every few years, vast numbers of these plump, mouselike denizens of northern climes would mindlessly set out on a one-way journey to Lemming's Leap, whence they would cast themselves from clifftops into the sea. Recent research, however, has prompted scientists to conclude that their periodic grand demise is due to intollerable social conditions -- a simple matter of too littes food for too many animals in too small an area. Most don't even get to enjoy their short-term seaside vacation. They die of starvation on the way, or eaten by other animals.

Haw do we humans stack up? Why are we, young and old alike, killing ourselves? In Dade County, Florida, 37 suicides were recorded at the secondary school level in the 1988-89 school year. the previous year, two children took their lives in Volusia County. One was thirteen, the other eleven.

Evidence suggests that economic difficulties spur an increase in suicidal behavior. This is understandable, as we are conditioned to view the Price System as the supplier of all our wants and needs. When that tenuous underpinning is pulled out from under us, where do we go?

But this is too easy, too simple. The question behind this answer is: Why are we so dependent on the artifice of the Price System that we value it more than life?

Perhaps the answer may be found in the case of the 19-year-old college student in Texas who recently took his life after telling his parents how empty he felt. This was not a down-and-out misfit. This was a highly promising youth, a consistent achiever, a model of self-motivation. Yet underlying it all was a sense of futility. His parents would remember that, in spite of his achievements, he would constantly point out the stupidity of it all, the falseness. In view of conditions in the world today, this youth, obviously, was too perceptive for his own good. Acquaintances shake their heads and ruefully observe that kids think too much these days.

Aren't kids supposed to think these days? Or are there too many of the wrong things to think about? Is the rash of suicides, as in the case of the lemmings, an indication that social conditions are becoming intolerable?

Consider the falseness in which we live and move and into which we thrust our children at ever earlier ages. A lip-synching president with a pair of slick-dealing sons. Elected representatives who would let the nation come to a halt as they haggle about how much the rich vote is worth. Consider an economy that thrives greatly on human suffering, weakness, and warfare. Perfidious religious leaders. Highly-paid role models revealed as shysters and drug addicts. Deprivation in the midst of plenty. Bullet-proof clothing for school children. An eroding planet. And all this posing behind the false mask of freedom and a prosperity reserved for the game-players.

We live in an age of unprecedented peril. Our technological capabilities are making possible a condition of universal peace and abundance undreamed of by any except the most starry-eyed of philosophers. Yet we labor under the constant specter of devastating warfare and internal strife as may be seen in the grim reality of conflict around the globe.

In North America, unlike the environs of the unfortunate lemmings, our problem is not too little food for too many human animals. Otherwise, why would we be destroying millions of tons per year? The problem with food distribution, as with all the other necessities of life that are withheld in order to protect profit margins, is the very system by which we operate, the system of imposed scarcity and commodity valuation that Technocracy calls the Price System.

Herein lies the real falseness, the big lie: the facade of charity and concern we maintain while, in reality, it is the adversarial pursuit of acquisition that holds sway over our actions, not a sense of service. We are no longer what we are, or even what we achieve, but what we have. This is especially unfortunate in that, in a land of abundant resources and the technology to develop them, the workings of finance actually serve no higher purpose than that of an artifice that separates humankind from its true nature as a social animal.

Technocracy has presented ample evidence that the false underpinnings of finance, never a reliable source of security, are rapidly being washed away by the inexorable tide of technological advance. At the same time, those who maintain their power over human affairs through the manipulations of mercantile wizardry are doing whatever it takes to keep humankind laboring under this false dependence, with the tragic result that the masses who see their base of security -- the Price System -- being taken away from them are reacting accordingly. Even more tragic are those promising souls with the brains to see the inescapability of the falseness and who choose not to participate in it.

Suicide is an extreme reaction to negative input. Most people don't resort to it. They indulge in slow suicide as they choose to lose themselves in drugs or alcohol, or beat up on those closest to them. Some beat up on those not so close. Or shoot them. Or cheat them. Or any of an infinite number of other anti-social activities that the intolerability of our situation demands of us. The number and form of expressions vary as much as human individuality itself. There is, however, but one cause -- the falseness.

The Price System has onswered this in typical and predictable fashion with a myriad of bandaid approaches that only serve to mask the true problem, which goes unresolved: the Price System itself. All prescribed remedies are merely designed to perpetuate it.

In an optimum setting, when all needs are met and all intrinsic expressions of individuality are given free rein, humans do not need to be bribed to do worthwhile things. And deep down, we know it. Ours is a society of individuals in conflict with ourselves. Our instincts demand that we be of service, while our monetary system dictates that we withhold that service in order to guarantee the perpetuation of the system. This is the falsehood, the big lie, the Grand Separator of humanity to which even religion and philosophy must bow. And it is this conflict that drives the socially conscious to distraction and destruction.

The lemmings die because their conditions are no longer adequate to support them. Are we, supposedly the most intelligent species on earth, allowing our devotion to the demands of the Price System to head us in the same direction? We cheat, we lie, we fight, we undermine the very planet that is the true source of our livelihood.

Technocracy's Technological Social Design provides the only solution to our imposed inhumanity -- a functional governance for the operation of the physical functions of North America, a design for universal abundance through balanced production and distribution. With Technocracy's guarantee of equal consuming power for all, no one would live in fear of want, and no one would be called upon to be false to his neighbor or himself in order to secure the things necessary for a good life. For the first time since before the advent of the Price System, humankind would be allowed to live in harmony with longings of their true nature, not under the dictates of a financial system that demands ever more and renders ever less.

Our potential is so much more than that of lemmings. We need not perpetuate the intolerable conditions that take so many from us. The college student in Texas did not think too much; there is no such thing as thinking too much except in a system that demands a liberal supply of non-thinkers for its continuance. Perhaps the truth is, far too many of us think too little.

Radiowonk # 70

"...but the easy answers are (a) a minimum wage structure, (b) overheads such as National Insurance and Pension costs, (c) a Unionised labour force, and (d) social policy legislation that forces an employer to recognise "employment rights" that ultimately cost *me* as an employer. (I make no claim that the list is necessarily complete.)"

Yep, in a word, government. There are a few more, but essentially you've nailed it!

BTW, I wouldn't pay too much attention to JJ's sophistry.

#70 Radiowonk,

playing devils advocate here.

Why is it YOUR business? Surely the people who are also employed in the business have a stake in its wellbeing?

You list a number of factors that you claim ultimately cost *me*. However, are they not just really the differentiators between a developed and a developing society? BTW, in the UK, the unionised workforce thing is more than a bit overplayed.

Now, if you want to live in a developed society then surely you should support those costs to society that enable it to function? Further, do you not have a scoial responsibility to forgoe the low cost option because it is only possible because others do not enjoy the same benefits?

There apears to be a consensus that there is no return to what went before. If that is so, then perhaps we should also be challenging some of our previous conceptions of what was/is.

Nothing personal here, just opening a different train of thought.

#65 Libertarian Kurt

You define the relative value of things by what agents are prepared to exchange in a "free world". However, that "definition" can be questioned.
How do those agents come to decide the relative exchange of things, and why is their decision so sacrosanct to you?

Moreover, this definition requires two or more parties. However, what about a situation in which there is only party? What if the human race suddenly decided to operate as one party working together - what method would this one agent use to decide how to optimally use the finite resources - oil, metal etc that we have available. Our standard of living is limited by the laws of nature only - and our managemement system (whether it is free market or not) should be chosen to optimise our sustainable standard of living.

I realise that this of course cannot provide a complete definition of "optimisation" because "standard of living" is quite subjective.

So, to test whether a `free market' really leads to an "optimal standard of living" I decided to consider an example which wouldn't be too subjective (I hope): the example of recreational narcotics. It is pretty clear that using oil to distribute recreational heroin is not a good use of resources. And that clearly shows that in some situations the 'free market' is not optimal.

68 foredeckdave

'......"The other alternative is producing something which has a percieved value and a premium price, something which is more scarce."

That is just plain wrong. Many companies have and do operate very successfully in markets and with products that do just that......'

I do not have any problem with the examples you give, other than to say cosmetics is on the slide and pop groups do not employ many people. There are just not enough of these sort of businesses. Otherwise there would not be a problem would there. The issue is not the banks other than the bubble and reckless lending. The issue is there are not enough businesses producing stuff people are prepared to make themselves poorer to obtain. Further that if cost is the issue with a product them you cannot compete with the low labour cost zones. Take the bubble away, pretend it never existed, the problem of production still is there, the bubble just hid it. Its got nothing to do with the banks. Dont look to the banks for a solution it will not be there.

70 Radiowonk

I agree your underlying position that it is not possible to produce a standard product in the west which can be made in the east, I dont know how anybody can argue about it. As a huge number of products are capable of being made in the east the current problem is not going to go away. I am not sure unpicking the restrictions you list would make any difference. The east will be more competitive if only because they do not pay 46 pence in the pound direct and indirect tax because they do not have welfare provision. When are people going to wake up to the fact this mechanism has not finished yet, it is still in process. Major long term unemployment is the result.

In posting 73 foredeckdave asked "Why is it YOUR business? Surely the people who are also employed in the business have a stake in its wellbeing?" and "Further, do you not have a social responsibility to forego the low cost option..."

It is my business because I developed the Ultimate Widget 2009, and I want to ensure that I maximise the benefit of the invention. Clearly other employees have a stake in the wellbeing of the company, but how would they react if I suggested doubling their numbers but reducing individual remuneration because my corporate income would not double at the same time. There is the further point that in having no option about the overhead costs identified earlier my company is already "doing its share for the common good".

Sadly philanthropy at the core of a business model is rather rare, not least because any business so constituted would probably be rather short lived, particularly if its product is competing against cheaper options even if they are not quite as good.

Furthermore, if I invite others to participate in the benefits of the "UW2009" by selling shares then unless I write a prospectus that is a pack of lies potential investors are pretty soon going to spot that their hoped - for return is going to be reduced by what amounts to a swollen cost base.

As I quoted earlier "Corporations have neither bodies to be punished, nor souls to be condemned; they therefore do as they like", and perhaps that is close to the root cause of the present problem, at least in the UK.

foredeckdave also stated "There appears to be a consensus that there is no return to what went before". Probably true, at least in the short to medium term. But what went before includes paying over the odds for high - end products at the behest of the "hidden persuaders" and it may just be that consumers either choose not to be so easily persuaded or realise that the fancy name is not worth the additional cost. They may elect to stop buying things they don't really need with money they don't actually have.

Devil's Advocacy is a very worthwhile intellectual tool!

bravenewflabby # 74

"How do those agents come to decide the relative exchange of things, and why is their decision so sacrosanct to you?"

In order to answer this question, I would need to elaborate fully on my post # 29; this would necessarily involve explaining the Subjective Theory of Value (STV) and its logical components:

1. Satisfaction and valuation.
2. The Principle of Marginal Utility.
3. Value and Exchange (briefly covered at # 29).
4. Use of Money.
5. Use and Exchange Value in the Market Economy.
6. The Pervasiveness of Subjective Valuation.

However, before I begin (if you want me to, that is), I would really like to see/hear YOUR definition of value, which BTW, has, up to now, not been forthcoming.

Radiowonk (#70) "In #66 JadedJean asked if I am mad. (At least the blow is softened by ":)"!) Possibly so, but I'm not sure that the video told me why. Clarification might help!"

It was irony - the video makes the point you do. I'm the mad one allegedly, I was asking if you were joining my club ;-).

The point made by ETS back in Feb 2007 (when the report was published, i.e. well before the crash) was just a catchup on what was circulating amongst those in the field, and was made in 1994 by Herrnstein and Murray along with others, namely that the USA was on the road to ruin along with Europe (see Lynn on this, and Cattell before that) - it goes way back. Some of us predicted the USA would go down first through its dysgenic fertility brought about a) by high levels of low-skilled immigration (largely Hispanic) and b) high differential below replacement level fertility in teh indigenous brighter population exacerbated through over-education of females in the upper half of the Gaussian distribution of 'g' lowering their TFRs. The notion that ability can be improved through education is a nonsense given that cognitive ability is largely genetic and therefore isn't improved through schooling. The PRC on the other hand has a 5 point mean advantage in 'g' over the USA and EU which is only likely to increase through their 1995 eugenics legislation whilst this is proscribed in the West by law - see Article II of Lisbon's FCHR just made the power shift inevitable sooner or later. The PRC also has a much larger population of course, meaning they churn out more high grade technical graduates than the USA and EU combined, not to mention it putting people before profits.

It's all been said here in more detail before and the advice given to prevent it both in the USA and EU has been ignored just as it has in this blog.

People don't know how and when to listen anymore. They are getting more and more stupid :-(

#54. Anthony_analyst wrote:

"All these financial instruments, which paid out when companies failed, led some to worry that another large failure. such as Lehman brothers. would trigger a domino effect. I always assumed that these instruments
a, are no longer being issued.
b, were mostly of relatively short duration i.e up to a year.
So though the mortgages and related toxic assets still exist a lot of the systemic risk is now largely gone.
Are these assumptions correct ?"

The major problems in constructing an answer to the body of your question are:

A. we don't know if these or other instruments are being issued as they were not, and others may not be, traded in an open market that requires any from of even semi-public accounting - all of these 'securities' are under the counter (actually called "over the counter") and by definition we do not know about them.

B. As we don't know about the financial instruments their terms and conditions are also unknown...

So the answer to your question is the worst possible - "uncertainty". But what can be said for certain is that we don't know even the things we don't know the we don't know.

This by the way is one of the regulatory elements that mat be put into place (but is begin strongly resisted by the market participants lobbying) to regulate the market and this it is proposed should be done through an exchange like market where at least all deals are recorded.

This is the situation to the best of my knowledge. Are there any US market insiders or paid lobbyists who would care to expand on the present situation in more detail?

In summary I am afraid that in answer to your question "Are these assumptions correct" - I can see no correct answer apart from "No".

glanafon # 37

Your reference:

Capitalism: A Treatise on Economics by George Reisman:

Chapter 9 (Part A).

5. Private Ownership of Land and Land Rent.

Quote:

"There case against the private ownership of land and natural resources rests on the theory of land "rent" developed by David Ricardo, a theory which, as I will show, is grossly deficient in its failure to incorporate the actual effects of private ownership of land and natural resources."

pp 310 (book version).
pp 360 (pdf version).

Radiowonk and glanafon are in agreement that maufacturing in The West is dead purely because of the cost element. Well maybe if you continue to believe that cost is the prime factor. Costs are about money whereas Price is about value. If you continue to equate the two then you can only perpetuate the fallicy that has led us to the point where we are now.

Now let's look more closely at this cost differential. It only exists in terms of unit labour costs. Primarily because the 'cheap' producing nations do not carry the social and employment overheads that nations in The West do. So the argument goes that we cannot make them take on our style of provision.Therefore if we are not prepared to reduce our social costs and structures we must give up the whole idea of manufacturing. That is just not true.

Certainly we cannot make any other country or region adopt our level and style of social provision. However, we do have another series of options other than reducing our level of provision and/or labour costs. If we in The West aggregate the costs of our social provision then we can attach that as a Social Charge to all imports from low labour cost countries. Hence, we would then have a level playing field in terms of labour costs.

Would that not be against the rules of the WTO? Maybe, but we are not obstructing world trade, merely addressing an imbalance. There would be no barrier to goods from China or India for example. If they can povide the goods at a cheaper price whilst still including the Social Charge then they are truly competeing.

Is it unethical? It can be argued that it is totally ethical. We already engage in fairtrade contracts, we apply ethical clauses in supply contracts eg no child labour, no slave labour etc. The closer a supplying nation comes to spending/meeting the social provision that we demand for ourselves, the lower the social charge imposed. The counter argument also holds true. Why should a western worker loose his/her job, experience less social provision merely because another country manipulates unit labour costs by providing less social provision? After all they are only getting poorer and less able to buy the 'cheap' imported stuff - and the greater the chance of major social unrest.

But what happens to the charges collected? Well they could be transfered to the World Bank, the UN or any other designated world body to asisst truly developing nations to build-up their social programmes. I accept that this part of the programme would require a far higher level of management and scrutiny than has ben applied to aid programmes. The important thing is that the Social Charge is not retained by the importing nation as would normally be the case with tarrifs.

With a more level playing field on cost we can then return our attention to adding value to effect price. If a nation such as China decides that it does not wish to incur Social Charges then it is free to trade with any market that does not impose them. It is also free to reduce its total unit cost by other means.

PLUS CA CHANGE..

LibertarianKurt (#72) Peoples Replubic of China 'sophistry':

"Article 1. The People's Republic of China is a socialist state under the people's democratic dictatorship led by the working class and based on the alliance of workers and peasants. The socialist system is the basic system of the People's Republic of China. Sabotage of the socialist system by any organization or individual is prohibited.

Article 2. All power in the People's Republic of China belongs to the people. The organs through which the people exercise state power are the National People's Congress and the local people's congresses at different levels. The people administer state affairs and manage economic, cultural and social affairs through various channels and in various ways in accordance with the law.

Article 3. The state organs of the People's Republic of China apply the principle of democratic centralism. The National People's Congress and the local people's congresses at different levels are instituted through democratic election. They are responsible to the people and subject to their supervision. All administrative, judicial and procuratorial organs of the state are created by the people's congresses to which they are responsible and under whose supervision they operate. The division of functions and powers between the central and local state organs is guided by the principle of giving full play to the initiative and enthusiasm of the local authorities under the unified leadership of the central authorities.

Article 4. All nationalities in the People's Republic of China are equal. The state protects the lawful rights and interests of the minority nationalities and upholds and develops the relationship of equality, unity and mutual assistance among all of China's nationalities. Discrimination against and oppression of any nationality are prohibited; any acts that undermine the unity of the nationalities or instigate their secession are prohibited. The state helps the areas inhabited by minority nationalities speed up their economic and cultural development in accordance with the peculiarities and needs of the different minority nationalities. Regional autonomy is practised in areas where people of minority nationalities live in compact communities; in these areas organs of self- government are established for the exercise of the right of autonomy. All the national autonomous areas are inalienable parts of the People's Republic of China. The people of all nationalities have the freedom to use and develop their own spoken and written languages, and to preserve or reform their own ways and customs.

Article 5. The state upholds the uniformity and dignity of the socialist legal system. No law or administrative or local rules and regulations shall contravene the constitution. All state organs, the armed forces, all political parties and public organizations and all enterprises and undertakings must abide by the Constitution and the law. All acts in violation of the Constitution and the law must be investigated. No organization or individual may enjoy the privilege of being above the Constitution and the law.

Article 6. The basis of the socialist economic system of the People's Republic of China is socialist public ownership of the means of production, namely, ownership by the whole people and collective ownership by the working people. The system of socialist public ownership supersedes the system of exploitation of man by man; it applies the principle of 'from each according to his ability, to each according to his work.

Article 7. The state economy is the sector of socialist economy under ownership by the whole people; it is the leading force in the national economy. The state ensures the consolidation and growth of the state economy."

The largest (and brightest) socialist country in the world whose constitution is essentially the 1930s Soviet Stalinist constitution. Might this nation of bright 'sophists' be waging economic warfare against her ideological enemies? Lookingat outcomes alone, have economic anarchists (Austrian School/Chicago School 'neoliberals/Trots') in the West been aiding that?

Back in the 1920s during the NEP, the USSR's GAZ was built by Ford. The logic behind five-year plans and plannug/regimentation is essentially Ford-Taylorism.

China, Iran, India, Pakistan like North Korea are not members of the PSI. South Korean and US troops are now on alert because South Korea joined the PSI. Russia and Mongolia are in the PSI, but then, they're also in the SCO or keen to join like some of the above hedging non PSI members.

Watch the ETS video again.

FRUITISTS

FrankSz - Did you follow the link to the 1950 UNESCO statement paying close attention to the group affiliation/agenda of the authors?

Are people who can tell the difference between apples and oranges fruitists?

What is the difference between shared-environment and non-shared environment? Why is shared environment not very important? What comprises environment? What are gene-barriers?

Thought for the day: Why will anarchists/entryists have a much harder time converting/subverting the PRC than they did Russia in 1917/1956 or the USA/Europe?

Radiowonk-totally agree with your comments re employment costs-they are crippling-currently ours are the equivalent of another 3 members of staff in one of our companies, and 5 in another.

Foredeck Dave-brilliant idea-social charge. A truly global view. Can't see it happening anytime soon, but excellent thought. Wonder what China's view would be?!

As for house prices-their increase is madness. If the average house price is now say £170,000, deposits required at 20-25 pc and income multiples are 3+1, this surely means a deposit required is £42,500 and salaries at £31,875.

I'm sure every FTB earns that amount and has that amount saved!!!!!!!

Cloud cuckoo land!

Until property is affordably priced, mortgages and deposits achievable by FTB's any 'recovery' in the housing market will be short lived.

There will be generations of people renting for the forseeable future. Only those who already have a house to sell with a low LTV will be moving house. This, again, will depend on their position on the property ladder.

Just how many of the mortgages and sales in the reported increasing levels consists of FTB's I wonder?

81 Lib Kurt

Thanx for the ref, will read. Appreciate your time.


82 Foredeckdave

I have not said manufacturing is dead in the west. If you want to read it as that you can do. I have said certain types of manufacturing are impossible in the west at present and that has an employment implications and demands a certain type of manufacture to be able to produce anything. I would have thought that was a given in view of the sheer volume of data on manufacturing relocating away from the UK and the umemployment problems apparent. Manufacturing activity has a relationship with unemployment. If you want training which is high on your list then I would suggest training people for the new type of manufacturing needed would be helpful, but I do not see how it can be done when the propblem does not even seem to be recognised by government. Instead they talk about forming loft lagging gangs (loft lagging = selected give aways to selected social groups) out of the unemployed to keep them busy on the dole and charging every household that uses electricity a hidden 38 quid a year to help fund it. Yet another strealth tax. This is apparently on hold and the work being done by private companies, who really should be considered public sector workers.

Imports - A proper carbon cost would help because a high reliance on transportation is part of this model, but even so the differential in labour cost is massive. I am not against a restructuring of work, but I do not believe it will be voluntary for most and it will not be easy.

In the meantime if you want an immediate solution getting on and doing things like housebuilding would be a good idea. Set a criteria for green housing using local materials. Nominated land, give planninng. Get people working. It is an obvious thing to be doing. Call it social housing if need be. The complete lack of any cohesive policy of moving forward other tham pumping money is worrying. Housing is difficult to import so it is the last thing to have put on hold. Money put into housing can be recovered via sales downstream, no different to the banks and possibly more effective than the banks. Cars, the current big talking point with government, well cars can and are being shipped in. Car job losses are like airplane crashes. Airplane incidents get a big coverage because hundreds are involved in one incident. Meanwhile a factor of 10x plus are involved in routine transport accidents and collisions with very little focus on the volume. So car jobs are probably getting more attention than other jobs.

You suggest a import tarrif by any other name. If you want to see what looks like a arbitarily set list look up the US import one. It still is not stopping imports to the US The only thing that seems to stop imports is consumers not having money. Further consumers will be quick to condemn a rise in prices, look at the sustained campaign against high UK car prices. Part of the problem is you have too many of the population who are not economically active who benefit from high levels of welfare provision and from cheap imports. This is before you consider the retailers who benefit from imports, at least one of which ran a significant activity trying to lobby for the pound to be kept high.

All I am suggesting is it is recognised that certain types of work are no longer viable and concentration should be made on those activities that do function. However it is packaged lower wealth looks the common outcome. A high standard of living can still be maintained but if people do not recognise the problem and participate in changing the way things are done then a lower level will result.

You have complained about the low FX. Would you support an even lower FX if it helped Blighty. That is the sort of decision you are asking for, that the GBP buys less.

Another baseline cost that I omitted from my original list is, of course, Health and Safety compliance; a factor that might not feature much in Far - Eastern manufacture.

On the matter of a "Social Charge" surely an import tariff is an import tariff is an import tariff whatever new name it is cloaked in. The WTO would never agree to it!

If this thread is still running this evening I will come back in; in the meantime I must go and do other things. With luck I will be able to forget about the mess we are in for a short while.

Have a nice day...

China has warned a top member of the US Federal Reserve that it is increasingly disturbed by the Fed's direct purchase of US Treasury bonds.

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5379285/China-warns-Federal-Reserve-over-printing-money.html

LibertarianKurt #78

I haven't been forthcoming on a definite description of "value" or "optimal" as I don't think that it is possible to give a definition of "value" and "optimal" that is not subjective - the situation is simply not black and white. However, as a rough working definition how about this "X is a more valuable activity than Y at a given moment of time if X leads to a better long-term sustainable standard of living",
and an "optimal" strategy is one that maximises "the long term sustainable standard of living".

It is because of this difficulty of defining value, that I repeatedly am focussing on the specific more objective situation or recreational narcotics, in order to test whether the free market is really optimal. So let me ask you the following brief questions:

(1) If you happened to be a world dictator for the day, and your goal was to maximise the long term sustainable standard of living for everyone, and we all had to do exactly what you said, would you decide to run heroin farms to grow heroin for recreational use?

Presumably No.

(2) Therefore do you accept that it is not advisable for society to run recreational heroin farms?

Presumably Yes.

(3) Do you accept that in a totally free market (with no legislation against heroin use) that recreational heroin use would quite likely persist, and such heroin farms would persist?

Presumably Yes.

(4) Therefore do you accept that a free market would lead to society developing inadvisable activities which are suboptimal as they consume finite resources (such as oil) for activities which hamper our long term sustainable standard of living?

Presumably Yes. Hence the free market is not optimal.

Traditional 'economics' is 'too narrow' in scope and also 'out-of-date'. It has also 'failed' hard-working people and is now effectively 'dead'.

But attempts to improve it, change it or widen it, will always be resisted. Dr W Edwards Deming, a creative outsider and a real 'leader', uncovered the "System of Profound Knowledge" and referred to the need for a "New Economics" (nearly 20 years ago) ... but, when terms are so out of date new words/definitions are needed, and for that reason, and for those interested, I am continuing his work ... using the definitions below:


* Leanomics = People taking responsibility for adding value and continuously improving the situation for others (e.g. customers, communities, overall environment), based upon fundamental values such as trust, honor, responsibility and respect.

* Ignoromics = People are either effectively ignorant of the situation (e.g. the overall environment) or not prepared to take responsibility to make sure it changes for the better.

* Poweromics = People using position and power for their own personal gain, based on poor moral values, self interest and greed.

It is worth noting virtually everything fundamentally centres around 'people' and the 'values' they uphold. It is also worth noting that Ignoromics is what allows Poweromics to flourish, and in my view this summarises the current (and widened) definition of 'economics' that prevails today.

Why not take a look at what 'leaders' everywhere are doing (e.g. your boss, company, service provider, government, politicians, media ...) and look at how many people understand this and/or prepared to do something about it ... I think you'll find its small ... albeit steadily growing (helped by the internet, and recent activities of banks/MP's etc).

IMHO the battle of the future is really one of values, and given the above definitions, can be simply summarised as ...

Leanomics v Poweromics & Ignoromics

For those interested I hope this is helpful ... and I would certainly recommend the work of Dr. W. Edwards Deming as a good starting point for looking into this further ... people are still amazed (and learning) how profound his insight actually was ...


David Clift, a Future 500 leader

bravenewflabby # 90

I think you are making the mistake of trying to define value as being abstracted from human action. Value is subjective to the extent that an individual will always seek the best means to satisfy his/her ends. The means can always change and therefore the value scale of the individual is constantly changing in order to better attain the goals of that particular individual.

And so the explanation of all economic activity that takes place in the market economy ultimately rests on the subjective theory of value. The value of various consumer goods and services does not reside objectively and intrinsically in the things themselves, apart from the individual who is making an evaluation. His valuation is a subjective matter that even he cannot reduce to objective terms or measurement. Valuation consists in preferring a particular increment of a thing over increments of alternative things available; the outcome of valuation is the ranking of definite quantities of various goods and services with which the individual is concerned for purposes of decision and action. Theory resorts to the hypothetical concept of the scale of values in seeking to explain and understand the nature of human valuations. The ranking of alternative ends is determined by the person's expectations of satisfaction from each specific choice faced by him at any moment of decision. He will invariably select the alternative that he believes will yield him the greatest satisfaction.

The subjectiveness of valuation rests in the nature of satisfaction - satisfaction is subjective and not open to numerical measurement. The extent to which a thing gives satisfaction is always personal. People derive satisfaction from different goods and services; that is, all people are not alike in terms of the types of things that please them. Experience also demonstrates that a person's preferences vary from time to time. His ranking of alternative choices may undergo a reshuffling at any given moment. His scale of values may also be altered by deletions or additions.

To relate the matter of valuation to the individual person is not to suggest that each individual is concerned only with the satisfaction of his own appetites and needs. A person may find satisfaction or relief in helping another person. Satisfaction can be and often is derived from the attainment of altruistic as well as "selfish" motives. But the point remains that regardless of the form the satisfaction is to take, each choice arises from subjective valuation on the part of the particular person who is doing the choosing. The uneasiness that he seeks to remove is in his own mind, whether such uneasiness pertains to an immediate problem of his own or to a problem faced by someone else. His choice stems from the preference that he has for the removal of a particular uneasiness over another problem to which he could devote his attention.

You see how it is virtually impossible to define value in an abstract, intrinsic or objective sense. Now, I could go on to elucidate the Principle of Marginal Utility which solved the "paradox of value" that the classical economists grappled with during the mid 19th century. However, if you don't understand or don't agree with the STV, then it is really pointless continuing this debate.

BTW, I'm quite puzzled as to where you want take this debate with your apparent fixation with heroin. Would you care to explain?

THE PRIMROSE PATH

LibertarianKurt (#92) "I think you are making the mistake of trying to define value as being abstracted from human action. Value is subjective to the extent that an individual will always seek the best means to satisfy his/her ends. The means can always change and therefore the value scale of the individual is constantly changing in order to better attain the goals of that particular individual."

You still haven't grasped why your intensional writing is irrational and self-refuting have you? You're really not going to like it if/when the penny finally drops, which of course explains why you won't grasp this point. It's how delusion is sustained/reinforced hrough fear avoidance, i.e. negative reinforcement. Basically it's the same as what drove the debt bubble. It's akin to addiction. For the modus operandi see 'The Primrose Path'.

You avoid empiricism like Dracula avoids sunlight ;-)

JadedJean # 93

That's right JJ, just keep taking ineffectual pot shots without even attempting to refute the argument. You know, you remind me of that buzzing blue-bottle that finds itself stuck in the house; it keeps flying around, smacking itself into the window until eventually it finds an opening and flies away - or until I swat it of course!

;)

SPIN

LibertarianKurt (#94) "That's right JJ, just keep taking ineffectual pot shots without even attempting to refute the argument."

The point of the lined 1951 paper was that argument is useless when empty of empirical content. You have failed to grasp how and why your efforts to ensnare the unwary with specious argument is irrational sophistry, especially after you've explictly acknowledged that you reject empiricism.

The above paper was a logical illustration of why your sort of intensional trickery was abandoned in favour of empirical science by the cognoscenti decades ago. It's indeterminate. Read the paper, and read chapters 2 & 6 of Word and Object sometime. If you want to see how value controls behaviour, look into how Behavioural Economists study this in C.elegans, Drosophila, mice, pigeons, rats and other animals. The rest is largely just creative writing, which, as we have all seen in recent times, is woefully inadequate. You just like arguing. It's at best adolescent narcissism.

LibertarianKurt (#94) Here you go, economics, just not as you know it.

The trouble is that if the excess savers do return to their old habits, the international financial system doesn't have a good way to make them change course. . .

Whether politics in the form of the United Nations system or the usurper, the US led G20, implements a solution to the unsustainable trading imbalances - the economics editor thinks the process will take some time. This is bourne out by the US saying it is reasonably happy with the situation at present.

That's alright then.

JadedJean # 95

Empirical studies (mice, rats and pigeons etc.?) cannot show or predict how humans will act in the market place. By the time the data is compiled and a "suitable" theory is derived from it, it is long ago out of date.

You quite clearly have difficulty in grasping what was written at # 92. Go back and read it again and again if you must until - to use your expression - the penny finally drops!

Oh, BTW, thanks for posting the PRC's Constitution. Was I supposed to be impressed?

LibertarianKurt #92

I'm using heroin as an extreme example to demonstrate that the free market is not "optimal".

What would your answers to the 4 questions I posted in #90 be?

LibertarianKurt (#98) "Empirical studies (mice, rats and pigeons etc.?) cannot show or predict how humans will act in the market place."

How do you know that's true? The laws of behaviour apply across species, and you say empiricism doesn't inform your views. Not only is that irrational, it reveals an almost pathological lack of awareness of how you know anything. A scotoma.