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G20 do what needed to be done

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Stephanie Flanders | 19:15 UK time, Saturday, 5 September 2009

It was never going to match up to the drama of 6 months ago, when the lead item on the G20's agenda was saving the global economy. But at their meeting on Saturday the finance ministers did what they needed to.

They moved a few more steps to building a safer financial system - and sent a signal that the most important countries in the world weren't going to call time on the crisis quite yet.

All while resolving the traditional pre-summit row involving the French. Though France is declaring victory, voters hoping for caps on bankers' bonuses will be disappointed. But as a result of all the changes agreed by the G20, the average banker might earn a little less.

Banks will certainly have to put aside more capital in the good years to insure against the bad - though ministers still have to decide exactly how much. Not as exciting as some of the meetings of the past year, perhaps. But where the global economy's concerned, some ministers here would say boring made for a pleasant change.

Comments

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  • Comment number 1.

    We need a great deal of boredom, Stephanie, before confidence can return.

    I am afraid that once again the taxpayer was robbed. This was a very dull result. So the recovery measures continue but bankers will have to restrain their bonuses only not yet. St. Augustine of Hippo will be delighted at their understanding of his youthful predicament.

    I fear that a more radical, if not reactionary, examination needs to be made as to the role of banks. It would seem that not only have the hijacked the UK government they have also now hijacked the G20. Is there no respite to this corruption? Why should these dangerous, incompetent and greedy people hold all of us to ransom?

    Who elected them? Or has democarcy been cancelled for fear of offending the banks? Is this really a kleptocracy; a global kleptocracy? Are we into a new serfdom?

    For my part I am slowly losing patience. Is there nothing that can be done to persuade what is now laughingly called the financial services industry from holding us all to ransom?

    Or does the term `financial services' mean that we all have to service the banks with our finances? This seems to me what is going on.

    I used to joke that we needed to genuflect to the bank when walking down the High Street as if we were some medieval pilgrim at the shrine of St. Someoneorother. Perhaps I should stop joking and set up as a prophet.

    It is now clear that in order to resolve this issue the banks need to be tackled head-on with maximum prejudice if need be. This particular servant has become the master and needs taking down a peg or six.

  • Comment number 2.

    Smells like tail wagging dog Stanilic, doesn't it?

    But on the other hand G20 might turn their sights to BBC presenters and Footballers next.... afterall if we are closing down the Free Market.....

  • Comment number 3.

    In order to correct this absurdity we need first to separate retail banking from the funny stuff.

    If the sordid fellows doing the funny stuff want to bet on CDOs etcetera then they should be free to do so with the proviso that they fund their own losses. These Sordid Bankers, we could call them that, can then have as many bonuses as they like only when they finally vanish into thin air it is their problem and not the taxpayers'.

    Once these fantasists have finally disappeared into their chosen parallel reality we can require a reformed investment banking industry to do some investing in the real economy and deploy the 6,000,000 unemployed, or will it be 10,000,000 by then, into making things that other people want to buy. I have no doubt that this reintroduction into the complex yet rewarding process of adding value will energise what we could call the New Banker into funding the creation of a more moral society where the hard work of all produces the reward of a simple, equal yet stable society free from vile and vicious exploitation.

  • Comment number 4.

    stanilic (#3) "Once these fantasists have finally disappeared into their chosen parallel reality we can require a reformed investment banking industry to do some investing in the real economy and deploy the 6,000,000 unemployed, or will it be 10,000,000 by then, into making things that other people want to buy. I have no doubt that this reintroduction into the complex yet rewarding process of adding value will energise what we could call the New Banker into funding the creation of a more moral society where the hard work of all produces the reward of a simple, equal yet stable society free from vile and vicious exploitation."

    This is irony yes?

    The DSM-IV Axis II, Cluster B types (also in ICD-10) are incorrigible and nasty with it. They don't change. May I remind you of what the French were told?

  • Comment number 5.

    Fer nothin' you get nothin'. There are no free lunches.

    "Banks will certainly have to put aside more capital in the good years to insure against the bad..."

    Then interest rates for loans on the money that is available will go up and it will stunt growth. No magic there, just the law of supply and demand for money. Will everyone go along with that? I doubt it. Through one subterfuge or another, at least some countries will get around it. If the fate of the growth and stability pact in Maastrict is any indication of what's to happen here, look for those who call longest and loudest for it to be the first to circumvent any agreement and do it the most egregiously. Why does France keep coming to mind?

  • Comment number 6.

    Sorry to differ, but many people think each G20 meeting DOES match the previous ones - yet another useless talking shop providing a lavish taxpayer funded photo opportunity for incompetent politicians, not to mention yet another junket for journalists. Caledonian Comment

  • Comment number 7.

    Stephanie:

    What the G-20, was doing is enough for the time being....

    =D=

  • Comment number 8.

    Am I the only one who is tired of bankers and city traders being used as the sole excuse to this crisis?
    Are the people really that simple minded that they will accept "oh, it must be the greedy bankers' fault".

    Why is no one talking about how flawed the entire banking SYSTEM is?!
    The Federal Reserve DOUBLES the monetary base in a single year, and not a mention.
    The BOE follows on with printing money (that’s what it is, no fancy phrases here please) to "stimulate the economy"... because OBVIOUSLY printing money creates economic prosperity.

    It is this inflating that has caused these bubbles!
    All they are trying to do is pump up a burst balloon with more of the same. Fractional reserve banking, years of artificially low interest rates, massive malinvestment, unbalanced budgets, mindless and costly wars... and the answer all comes down to "the bankers were too greedy"?

    What a load of nonsense! If these people couldn't see the crisis coming, why would anyone trust them to find a solution to it?
    The fact is that the "credit crunch" IS the solution to all this economic madness and I welcome it.



    I refer readers to "Austrian Economics", "The Austrian theory of the trade cycle", Peter Schiff, Ron Paul, Ludwig von Mises... youtube that and see what you think.

  • Comment number 9.

    #8 Andronichuk

    Exactly.

  • Comment number 10.

    #8 Andronichuck

    Of course, the credit crunch is not only the 'bankers' fault. The UK population as a whole ran with the latest fashions of a mindless, debt funded consumer society, promoted to them by all media outfits, including the BBC. However, the bank's boards and managers, hedge funds owners, pension fund managers, accountants, rating agencies and the various regulatory bodies are all in the business, or should be, to assess the economy and act then responsibly as they promise in their public statements. They all failed miserably (either through naivety or massive greed) and many of the 'brightest' used and abused the UK financial system wherever they could for personal enrichment, with no thought about the longterm consequences for the wider society or even their own shareholders and customers. There is a legal term called 'fraudulent conveyance' and one could argue that by taking as much money as posssible out of the system, and then let the UK tax payers pay the bill of the bankrupt 'financial services industry' (a better wording would be 'financial exploitation industry'), many of the above listed entities indeed committed 'fraudulent conveyance' against the UK. They did this either by lack of understanding of economic cycles or, more likely, blinded by limitless greed. The financial system needs firm regulation and limits imposed, if you don't want the banks and pension funds to run the country and the next financial crisis to impoverish the country even more.
    You can find more of the relevant facts here:
    http://globalinsights.wordpress.com/

  • Comment number 11.

    Can anyone else see the irony of G.Brown insisting that banks should put aside funds to build up reserves in good years to cover downturns?

  • Comment number 12.

    Looking forward:

    1. Let us suppose that there comes a time when the 'extraordinary measures' currently in place to 'support' a potential recovery may no longer appear to be necessary.

    2. Let us also suppose that the Banks, who are the only beneficiary of these 'extraordinary support' measure, see the loss of the support as a bad thing for them, as it will depress their profitability (and bonuses).

    3. Then the question that come to mind is this: Are the banks in such a powerful monopoly position so as to be able to so manipulate the financial markets to demonstrate that the support should not be removed?

    Is this not the real problem with any potential withdrawal of the 'extraordinary support' measures? I think that there is a very high risk that as we have so few banks left and all of theses are to a greater or lesser extent in receipt of what amounts to profit support then they will act in such a way so as to delay or prevent withdrawal of that support. (Very much in the same way that US and EU farmers far subsidies and support.)

    (By the way these mechanisms have nothing at all to do with personality types and are a just the market consequences of the withdrawal of support and would occur even if the markets were being operated by computers without human intervention.)

    These arguments are the reason why interest rates must be put up ASAP and QE has to be stopped (and should never have been started.) However the 'wise men' (aka fools) of the G20 build this trap for themselves and there is essentially no way out of it, but the unpalatable one, of having to admit that there is a cost in terms of economic collapse and individual hardship that will have to be sustained by all of us because of the massive incompetence of the regualtors (Ben and Meryvn, both educated at Harvard!), the political 'masters' and their Treasury civil servants. (I can't blame the banks as they were essentially passive actors responding to the market conditions that were set and managed by the regulators. The politicians and regualtors will blame them to shift blame from themselves.)

    Mervyn and Ben, must go, QE must stop and interest rates must go up to 5 percent or so, and the sooner the better! Only when these three things have happened will we be on the path to recovery.

  • Comment number 13.

    invisiblehandadvisor (#10) "Of course, the credit crunch is not only the 'bankers' fault. The UK population as a whole ran with the latest fashions of a mindless, debt funded consumer society, promoted to them by all media outfits, including the BBC. However, the bank's boards and managers, hedge funds owners, pension fund managers, accountants, rating agencies and the various regulatory bodies are all in the business, or should be, to assess the economy and act then responsibly as they promise in their public statements. They all failed miserably (either through naivety or massive greed) and many of the 'brightest' used and abused the UK financial system wherever they could for personal enrichment, with no thought about the longterm consequences for the wider society or even their own shareholders and customers."

    One of the reasons why research such as teh Experimental Analysis of behavior (aka 'Behaviour Analysis) is so much out of favour is becuse it blows a hole in the 'frreedoim of choice' and oter mentalistic nonsense. People don't become obese or alcholics out of 'choice' any more than people fail their GCSE's out of 'choice' People don't become doctors and engineers becaus ethey 'work hard' etc. This all happens as a function of human genetic and behaviour diversity, which is a function of the birth-rate/immigration and contigencies operating upon this. That's what politics and economics is really all about, and abrogation is still politics and economics, it's just a class of politics and economics - anarchism (see Hnnsard 1919 for how this was used in 1917 against Russia, by Germany, as a military tactic.

    Why has the crime rate in Britain been rising ever since the end of WWII? Why is behviour in our schools dramatically deteriorating?

    Listening to George Osborne on the AM Show today, his failure to say what the sanctions would be used by regulators when they advise banks on what to do was ...predictable.

  • Comment number 14.

    SNAKES IN SUITS

    John_from_Hendon (#12) "By the way these mechanisms have nothing at all to do with personality types and are a just the market consequences of the withdrawal of support and would occur even if the markets were being operated by computers without human intervention."

    So it's environmental is it John_from_Hendon (the unwitting Marxist/Lysenkoist)? It has nothing to do with the types of people recruited into this business? I take it you have empirical research to show this, i.e. research which is at odds with the research which I have frequently referred to?

    You appear to make it up regardless of all the available evidence. Perhaps you take your own views too seriously because you don't reality check them enough against those of others? Is that because doing so would undermine your self-esteem (aka over confidence)?

    Try to learn from those who know more than you....Try to falsify your own points of view and see if any of them remain useful/predictive.

  • Comment number 15.

    The collapse of RBS was caused by its takeover of ABN AMRO. The takeover was approved by the RBS non-executive directors; by the RBS shareholders; and by the Financial Services Authoroty - none of whom were influenced by the bonus system within RBS.

    It is my view that there is little connection between the bonus system and the liquidity and capital problems of banks.

    However, if politicians want to find a way to reduce bank bonuses, imposing higher capital requirements is not the way to do it. If capital has to be increased to meet stricter regulations it can be done by paying lower dividends rather than reducing bonuses.

    The way bonuses could be capped is to give shareholders the legal right to vote to approve the compensation of directors and higher paid staff. Currently shareholders can only vote on directors compensation and the vote is not binding on the directors.

  • Comment number 16.

    All the real work is being done by the unelected bureaucrats and civil servants. The Financial Stability Board has issued its compensation 'guidance' as follows :-

    ' The Principles are intended to reduce incentives towards excessive risk taking that may arise
    from the structure of compensation schemes. They are not intended to prescribe particular
    designs or levels of individual compensation. One size does not fit all – financial firms differ
    in goals, activities and culture, as do jobs within a firm. However, any compensation system
    must work in concert with other management tools in pursuit of prudent risk taking.'

    The bankers were told this in June - no limits on bonuses were ever intended-, so these politicians are venting gas and air for public consumption.

    'Boring' suits the politicians just fine. The more boring it gets, the less questions asked of governments for allowing systemically important banking to morph its funding model in such a way as to criple the world economy.

    Without journalists asking the real questions they will all get away with it!

  • Comment number 17.

    #14. JadedJean wrote:

    "SNAKES IN SUITS" - "..research which is at odds with the research which I have frequently referred to?"

    Sorry JJ the 'research' you cite is out of context and to a very large extent simply wrong! You are writing psychobable nonsense again - I put the paragraph in my contribution specifically to provoke you to another stupid rant!

    Just to show how daft it is to think that everything is the product of the poor quality idiotic waste of money research that you always cite: there is no need to refer to psychobable to support market mechanisms that are simply mechanistic and require no human input at all - you seem stuck in the psychobable world and wallow in the nonsense! How on earth can you argue that a mechanism that requires no human input is anything to do with 'personalities' - as no people are involved! As this is logically impossible - you must be wrong. The market mechanism to which I was referring is simply the maximising of profits with the complication of monopolies - it does not require anything subtle or any of your nonsensical psychobable.

    You obviously read the wrong books and went to the wrong schools! There is no need to see 'snakes in suits' as computerised market mechanism and actors do not have an inside leg measurement and do not buy suits. Your education was undoubtedly a waste of money for all of us. The role of psychology and your often cited genetics(which I find most repugnant and a 'sin' in itself) in economics is vastly overrated, and because of that on balance, wrong. The so called understandings are the product of bad-science and are in the main irrational and of little value to anyone.

    Just like most economics taught in the last thirty years - the only value of the education that has proved itself so incapable of achieving its own aims is to keep fools off of the streets. It is a great pity that the peer-reviewed journals and self justifying cadres of so called economists ever published anything as they have been a total and absolute failure and the their paradigms and theories are proven, by events, to be bad-science and are a waste of time and money. Like you, they have wasted their lives, and the pity is that we have wasted our money funding them.

  • Comment number 18.

    I have come to the conclusion that G20 summits are nothing more than trickle down economics at work..

    Taxpayers hand over money to governments who then spend it on junkets that give employment to event planners and photographers and spin doctors and PR people and hoteliers and security guards and flight crew and translators and civil servants and cleaners and laundries etc etc

  • Comment number 19.

    John_from_Hendon (#17) "The role of psychology and your often cited genetics(which I find most repugnant and a 'sin' in itself) in economics is vastly overrated, and because of that on balance, wrong. The so called understandings are the product of bad-science and are in the main irrational and of little value to anyone."

    I see....

    How long have you been having these errant, Lysenkoist thoughts? ;-)

    It appears to me that you may be largely unaware of the false ideology you have been misled to absorb as de rigueur.

    You really do need to look up the word 'rant' and re-read your own post, as there's an awful lot of hard science behind my 'sin', and I'm just trying to enlighten you (and others like yourself) to something which is rather important which is at odds with your unexamined assumptions. You really should listen, and follow up the links.

  • Comment number 20.

    Message 4

    No Jean dear, it was not irony it was sarcasm.

    You also missed the jibe about Sordid Bankers but then you are more text-book than `street'; aren't you?

    I enjoyed the proximity of Lillian Goldman and the Avalon Project. What on earth is an East European, as you choose to call them, doing in the Apple Island? Is this perhaps a celebration of Joseph of Arimethea?

  • Comment number 21.

    #10 invisiblehandadvisor
    #9 StevieYorkshire (tell me what you think of the link bellow)

    The only reason the bankers were able to do what they did was because there was too much "cheap money" around to play with. I don't deny that their "greed" is probably the drive for most of their malinvestment decisions, but it is the SYSTEM that allows them to continue making those malinvestments.


    How can the cost of credit be so cheap for almost a decade? The government has always been bragging about this as an ACHIEVEMENT, when in fact it is this cheap credit that has encouraged the reckless investments and spending made by both bankers AND the public.


    Fractional Reserve Banking, the unrestricted ability of central banks to print money, these things contribute to having an artificially low rate of interest. If the markets were allowed to function we would have interest rates set by market forces, not by "independent" central bankers. Answer me: How does a committee of men know what the rate of interest should be? They are guessing! We might as well be on that committee.


    When the system unwinds, what do the governments of the world do? They start to bail everyone out... at the taxpayers' expense. I do not accept the argument that this is the "practical" solution. Toxic assets should have been liquidated, auctions held, bankruptcies, takeovers, savings encouraged (not spending), balanced budgets... this would lead us to REAL economic prosperity.

    Radical monetary reform is needed to ensure that this sort of mess is minimised and avoided in the future.


    http://lpuk.org/pages/manifesto/economy/monetary-reform.php

    (I am a member of this party, I will be open about that).

  • Comment number 22.

  • Comment number 23.

    LibertarianKurt #22

    Like music to my ears. I really do hope that the Libertarians here will be able to push forward Austrian Economics into the mainstream.

    The Austrian school saw this problem coming, explained it perfectly and now world governments are doing exactly what the school advises to avoid... Keynes is haunting us from beyond the grave.


    Kurt have you ever come across the UK Libertarian Party? www.lpuk.org
    Our members blog: http://lpuk.blogspot.com/
    Only 2 years old, growing quickly, very grassroots, Austrian Economics coupled with social classical liberalism. Check us out. (if you are already a member, I think we may have met) :)

  • Comment number 24.

    It was not as boring as it appeared. Seeing politicuans swanning around patting each other on the back and reassuring each other that once more they have fooled us all is now common practice

    However, the press conference afterwards was more interesting. Did I really hear the jounalisr from the Wall Street Journal ask if Britain would be willing to give up its seat on the IMF for a more deserving case? So what is really going on? After all Mr Geigner when answering the same jounalist at his own press conference inferred he knew what was what.

    The same Mr Geigner who certainly calls all the shots that everyone else must follow.

    The rest may as well have stayed at home for it did not take much reading between the lines of Mr Geigner to realise that everyone is having to follow the lead of the US for good or ill. Strategy is still at the development stage. A few more trials and errors to go.

  • Comment number 25.

    "Not as exciting as some of the meetings of the past year, perhaps. But where the global economy's concerned, some ministers here would say boring made for a pleasant change."

    There is an *alleged* Chinese curse, strenuously denied by the Chinese, that go along these lines - May you live in *interesting* times !!

    Perhaps the bankers and finance ministers have lived in interesting times, both on the way up and on the way down, and they would like the time to be a tad less "interesting" than it had been over the last year or two !!

    Once again, I see a lot of rhetoric and spin in the main G20 meeting but what would be of interest and constructive action would be what's been said at the mini side meeting of the BRIC countries.

    Given the recent reports that one or more of the BRIC countries want to abandon the USD as a reserve currency, US Treasure Secretary might be wearing brown trousers now awaiting future developments. Wither the USD goes, there, too, go the quid and the Euro will be saying, "There, but for the Grace of God, go I !!"

    The major developing countries have had time enough to discover that the decimation or even the wholesale slaughter of the developed economies' markets do not mean the end of the world for them. It might mean a tightening of the belt but they will have looked for alternative markets in Latin America and Africa to take up some of the slack. In these days of the credit crunch, most of the newly emerging markets will go for things that they can afford rather than things they have to mortgage their souls for and the major developing countries have just the things for them at the right price range(s), too !!

    Therefore, interesting times are still to be had !!

  • Comment number 26.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 27.

    DON'T MINISTERS HAVE TO TELL THE TRUTH IN PARLIAMENT?

    stanilic (#20) Many East Europeans are fine (some(x)=not((all)x) in logic. I'm primarily interested in epidemiology/behaviour genetics in the final analysis. I've covered NYC demographics before in the context of predatory lending and scams etc. It's worth bearing in mind. Is it a prevalence issue, or that plus endogamous/predatory group behaviour?

    Don't forget what some of the British MPs were told in 1919. Why the general public didn't have the facts explicitly spelled out at the time should be obvious given the East End demographics at the time, and the further carnage which ensued on the Western Front as a consequence of Germany's anarchistic plan.

    All groups have their human bull-terriers.

  • Comment number 28.

    Re #8 By Andronichuk wrote Am I the only one who is tired of bankers and city traders being used as the sole excuse to this crisis? - No, at http://www.worldnews.blog-city.com there are a few articles there that explain where the problem really came from by showing that our Financial system was invented Pre-Machine age and is not fit for purpose in the modern age - it happens to be OK for times of rapid Industrial expansion and this lends it a false credibility. For times of economic Satiety it just not adequate - it's basic maths fails. You ask though 'It is this inflating that has caused these bubbles!' - the thing is, as you'll see from the Website our present financial system actually requires bubbles to function. Bubbles are not an aberration they are a necessary requirement at present. This leads me on to challenge Stephanie's hidden assumption in her statement 'Banks will certainly have to put aside more capital in the good years' - What makes her think we'll ever have 'good years' ever again ? Our 'good years' consisted of us buying 'cheap' things from China on credit for the past 30 years, China balancing the books by providing cheap mortgages and buying our government bonds in return. So these 'cheap' goods have cost us our industrial base, and we are now in massive hoc the Chinese with no small amount of our GDP paying the interest on our Chinese debt. Does Stephanie see a new bubble to save us ? Does she think that working harder will save us ? - Unless we start using NEFS - Net Export Financial Simulation, I can't see any way out. If you can, show us a basic Schedule of our starting position and show us if we get paid X in the next year and spend Y then... type thing for the next 15 to 20 years to give us at least one possible scenario of how the numbers might pan out. As I guess you'll have to rely quite heavily on Net Exporting please also explain how we'll cope with the friction between us and say Germany (and everyone else) who might be trying the same trick and exporting to the same Net Importers - we solved our differences last time this issue came up with a couple of World Wars – Or is she expecting the Aliens to turn up so we can then all Net Export to Mars ?

  • Comment number 29.

    ishkandar # 25

    "Given the recent reports that one or more of the BRIC countries want to abandon the USD as a reserve currency..."

    That's why Russia, India and China are increasing their gold reserves. China, as an example, recently announced it has added 450 tons of gold to its reserves since 2003.

    The Chinese are obviously worried about their US$ holdings and their officials are calling for a diversification of China's reserves into gold; they are expecting record highs for gold in 2009/10.

    The Russians are also thinking along similar lines. At a recent G8 conference, President Medvedev held up a gold coin and said with a broad grin on his face that it represented a "symbol of unity" and a possible "future currency".

    The beginning of the end for fiat (paper) currencies? Let’s hope so!

  • Comment number 30.

    Andronichuk # 23

    "Kurt have you ever come across the UK Libertarian Party?"

    To be truthful, no I haven't. But thanks for the link; I shall definitely check it out.

    Kurt

  • Comment number 31.

    GlenisDevereux # 28

    "...our present financial system actually requires bubbles to function. Bubbles are not an aberration they are a necessary requirement at present."

    This analysis is erroneous. It is far more accurate to conclude that the "financial system" cannot avoid these bubbles in the first place when they spring up during the boom phase of the cycle. The reason why the bubbles occur is not through any deliberate acts by private financial institutions but due to the inherent instability of the fractional reserve banking system of un-backed fiat money which is overseen and encouraged by central banks with the collaboration of governments.

    "Our 'good years' consisted of us buying 'cheap' things from China on credit for the past 30 years, China balancing the books by providing cheap mortgages and buying our government bonds in return. So these 'cheap' goods have cost us our industrial base, and we are now in massive hoc the Chinese with no small amount of our GDP paying the interest on our Chinese debt."

    If you study this problem properly, then you will realise that a true gold standard would nip this sort of thing in the bud my friend.

  • Comment number 32.

    The concept of malinvestment is something like this:
    1) I make widgets
    2) Widgets get popular
    3) Credit is cheap
    4) People invest in widget producing factories
    5) People invest in factories that make tools for builiding widget producting factories
    6) Credit is still cheap
    7) People invest in factories that make tools for factories making tools for building widget producing factories
    8) Credit is suddenly no longer cheap
    9) Everyone with money in anything other than Widgets is suddenly a total sucker

    I wonder how much this is still true. Makes sense for guns oil and cars, but the rest ...well I think it doesn't matter too much what we make. If it's widgets or widgets for making widgets, we'll find a way to switch technologies quickly and flexibly these days - malinvestment works today only on much larger scales.

  • Comment number 33.

    #29
    Lib Kurt

    Subsitute gold for SDR and you're on the money

  • Comment number 34.

    #23

    No it damn well didn't. It just said 'malinvestment' - with no timeline for the crunch. You can't call a prediction a prediction if it doesn't have an ETA.

    In any case, Austrian's making predictions is paradoxical - they refute the idea as part of Austrian economics.

  • Comment number 35.

    FrankSz (#34) "In any case, Austrian's making predictions is paradoxical"

    Hold that thought. Little people (and adolescents) believe they are the centre of the universe. Austrian Schoolers appear to be misguided Kantians or Husserlians - they believe in critical (transcendental) logic.

    Sadly, it's an infantile (solipsistic) disorder as Itrie dto explain to you and others. One can't enlighten/correct them though. They don't have much faith in the primacy of empirical reality (the real world).

    Some are Chosen People, created in their God's image - hence omniscient.

    I'm not joking ;-(

  • Comment number 36.

    FrankSz # 33/34

    "Subsitute gold for SDR and you're on the money."

    SDR is just another fiat currency backed by a basket of other fiat currencies which are, in turn, backed by nothing!

    Frank, have you ever considered that what the BRIC countries - in particular China - say publicly and what they think privately might not be the same thing?

    "In any case, Austrian's making predictions is paradoxical - they refute the idea as part of Austrian economics."

    Frank, I really wish you would get the facts right. The Austrian School doesn't make predictions. It simply puts forward the theory that the cause of business cycles (boom/bust) can be logically traced back to the monetary policies pursued by central banks with the implicit connivance of governments.

    Nevertheless, that is not to say that some proponents of Austrian economics - most notably Peter Schiff, a US stockbroker - did not accurately predict the collapse in the US mortgage/housing industry. However, it was his deep understanding of the ABCT that helped or aided him in his prediction; it was not the theory itself that predicted the outcome.

  • Comment number 37.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 38.

    JadedJean # 35

    JJ, please keep harping on about libertarians, Mises, Hayek and the Austrian School etc. You're doing us all a big favour! The more you rant on about it, the more other people will read these threads and will likely become interested in Austrian economics.

    Same goes for you too, Frank!

    Keep up the good work .There’s nothing like "free publicity"!

    ;)

  • Comment number 39.

    re LibertarianKurt #31 You've started with the assumption of something called 'the cycle' as if it's some sort of 'natural' thing that is merely reflected in the financial system. I think it was the 'genius' Marx who first started this economic cycle stuff. the 'genius' Von Mises, from what I understand didn't dispute it - the 'genius' me does ! Show me what non-financial - Real World - things are happening that are causing this cycle : A car factory makes cars - as long as customers have money it'll keep on making cars. What natural cycle every eleven years is happening ? Every eleven years the workers get tired and produce less ? Every eleven years the machines break ? - I have never seen one. If there are any cycles (which I dispute - I think they are only there if you 'look hard enough' and 'believe') then they are financial i.e. an artificial effect of the present artificial financial system that was designed pre-machine age and which is now not fit for present purpose. Take a look at the spreadsheet model and schedules at http://www.worldnews.blog-city.com - they model different economic scenarios - there is no natural cycles in them yet all but the NEFS scenario start with boom and end with bust - what part of them do I have wrong ? What scenario can you design that will be OK ? - Add Gold to it - will that help ? - Imagine I built a car and you wanted that car but there was not enough gold for you to get hold of to pay me - there is no boom and bust here as there is just no economic activity to start with - is this is a solution ?

  • Comment number 40.

    Re # 32. FrankSz
    1) I make widgets - I pay you 100p to make 100 Widgets
    2) Widgets get popular
    3) Credit is cheap
    4) People invest in widget producing factories - I pay you 100p to make a widget factory
    5) People invest in factories that make tools for building widget producing factories - I pay you 100p to make a widget making tools
    6) Credit is still cheap
    7) People invest in factories that make tools for factories making tools for building widget producing factories - I pay you 100p to make tools to make tools to make tools to make widgets
    8) Credit is suddenly no longer cheap
    9) Everyone with money in anything other than Widgets is suddenly a total sucker

    At the end of the Factory and Tool building phases there is 400p in consumer’s pockets and 100 widgets on sale. The customers are happy - they can afford to buy widgets, the workers are happy - they have jobs and income. The Companies are happy they are making profit. If there is no competition in the widget market and they are very popular - maybe a necessity - then I can sell the 100 widgets for 400p – all the money there is. But assuming there is competition then I will only get away with normal profit of say 150p - my costs are 100p wages plus say 40p machine charges and depreciation on tools and widget factories. Next phase only 100p in wages are paid out to the actual widget makers as the tools and factories are already built, so - and this is the important thing - I want back more money - by quite a lot - than I have been paid out this period – only 100p is paid out yet 150p is paid back. The period is the same and the next until all that bumper money dished out in the first period is all gone and we are in a bust. This is what I am saying - our financial system works well (seems to) only in times of expansion of some sort. Imagine a widget was actually ‘all their necessities in life and a few luxuries to boot’ then they have factories and tools that will produce these for them with little work from workers needed - i.e. at the point of their greatest wealth – they are financially broke and unemployed - and they close the factories and break up the tools and machines. I reckon they should break up the financial system that destroys such real wealth.

  • Comment number 41.

    #39 GlenisDevereux

    "Show me what non-financial - Real World - things are happening that are causing this cycle: A car factory makes cars - as long as customers have money it'll keep on making cars."


    Here you are very mistaken, it is not "as long as customers have money", but "as long as customers demand cars".

    You want a cycle?

    1. Car factory makes cars (because they are better than horse and carriage)
    2. People start buying cars. (cars become popular, this is the BOOM).
    3. People have cars.
    4. People no longer NEED more cars.
    5. Car prices start to fall to try to clear made cars that are not selling.
    6. Car prices collapse (Bust).
    7. People's cars start to breakdown and need new cars.
    8. People start buying cars again. (Back to recovery in market, BOOM).


    Non financial.
    In this current depression, "cars" is replaced by "mortgages and property".

    I think you are too fixed on the idea of fixed term cycles. We are explaining cycles in STAGES, not time frames. Products have cycles. Video Cassettes are no longer on the market because they have been replaced by DVDs, by they still had a “product life cycle”.

  • Comment number 42.

    FrankSz # 32

    I like your cute little "concept of mal-investment". The key question is where does this "credit" come from, Frank?

  • Comment number 43.

    It is all part of the New Order of the Economics of Futility

    i.e. The continuing process of a Bunch of Politicians exchanging words and doing nothing.. except tell people how they NOW have the answer to everything....again
    (but they haven't).

    Another guess is due out next month and the next month and the next month after that... ad nauseum....

    The Politics of the Exchange of Useless Words.

    These guys read it right

    #13 JJ
    'his failure to say .... on what to do was ...predictable.'
    ....Quite Correct

    #18 MrsBloggs
    'Taxpayers hand over money to governments who then spend it on junkets that give employment to event planners and photographers and spin doctors and PR people etc'
    ....Quite Correct

    #24 VirtualsilverLady
    Seeing politicuans swanning around patting each other on the back and reassuring each other that once more they have fooled us all is now common practice'
    ....Quite Correct

    #25 Ishkandar
    'Once again, I see a lot of rhetoric and spin in the main G20 meeting..'
    ....Quite Correct

    -----
    The Politicians words are all quite Useless and quite Path...et...ic

  • Comment number 44.

    Re # 41. Hi Andronichuk, thanks for your comment You say 'Here you are very mistaken, it is not "as long as customers have money", but "as long as customers demand cars".' - I still do not think I am mistaken on this point, the Honda/Toyota factories etc are closing down/gong on short times not because Mars inc is now selling mini UFO'S for people to fly round in and cars are so 20th century - if this was the case your point would be valid - it's because people who want to buy these goods don't have enough money - it's not a lack of demand it’s a lack of effective demand (effective demand = demand with a wallet) … and the wallet is empty.
    In your cycle you have :
    2. People start buying cars. (cars become popular, this is the BOOM).
    6. Car prices collapse (Bust).
    The bust we have now is not a collapse in prices of cars or anything else. The bust is people walking past car showrooms and saying we would like that but won’t buy it because we don’t have enough money. The boom, I suggest, is not when people start buying cars it’s when companies start building factories to make cars and they pay lots of money to workers to build plant and machines that is not matched by prices in the market place – there is more money in consumers pockets that prices in the shops – so consumers can buy what they want and everyone is happy. The bust comes when the cars finally go on sale and all the money paid out to make the factories for them is already spent yet the car company has to collect all this money back in prices and then some more before it can make a profit – it’s when the consumers have less money in their pockets than prices in the shops - that’s when we have a bust.

  • Comment number 45.

    44# GlenisDevereux

    If you look at the sectors that are currently crashing (Housing and Automobiles), a very interesting and important point has to be made...
    How many people buy a car or house with CASH?

    These sectors have been prompted up with cheap CREDIT.
    Why is agriculture, not collapsing? because not only are agricultural goods more of a necessity than cars (luxury goods), but also because they are mostly purchased easily with cash.

    The point I am making here, is that the people NEVER had the money to buy the cars, they bought on credit, and theoretically they should still be able to buy more cars now (because the cost of credit has gone down, artificially might I add)... However psychological factors (economic recession) is making people think twice, and I welcome this.

    What this comes back to is the "Austrian theory of the Business Cycle" which myself and LibertarianKurt have been advocating here. It is this cheap credit that has allowed the car industry and housing market to enjoy such a smooth ride up until now, because credit was easily available, the public mood was good, and people were willing to take on personal debt. The problem is that this system is unsustainable, and it is destined to come crashing down. We cannot spend our way into prosperity, or borrow our way out of debt. Unfortunately governments and Keynesians do not understand this basic law.

    In response to your statement:
    "The boom, I suggest, is not when people start buying cars it’s when companies start building factories to make cars and they pay lots of money to workers..."
    Companies will rarely start building cars when there is no profitable market for it. Supply must follow demand, and for there to be effective demand, the workers must already be doing something productive to have the purchasing power. The idea you’re proposing is not different to the Keynesian approach. Where you first “kick start” the process of paying high wages to workers, so that they can then come back and purchase what they are making...
    the problem that arises is this: How much should you be paying them? Why? And what sector do you propose kick starting?

    The market allocates labour in accordance with demand, and supply encouraged to meet that demand. If cars are not people’s priority good, why encourage and support the car industry that is economically inefficient? When car prices start to rise and showrooms empty, this is a signal to producers: “People want more cars! Get us more workers! Open another factory!” This is how the market allocates labour, and this is the system I propose as a solution to the crisis, not government misallocation of resources, capital and labour.

    If you are interested, search "the austrian theory of the business cycle" in youtube or google, tell me what you make of it.

    I look forward to your response on what you think about my above argument.

  • Comment number 46.

    No 24 "It was not as boring as it appeared. Seeing politicuans swanning around patting each other on the back and reassuring each other that once more they have fooled us all is now common practice"

    Don't be fooled by bonhomie and the "patting on the back" !! All that patting is just a means to discovering the best place to stick a knife into !! :-)

  • Comment number 47.

    No 36 "SDR is just another fiat currency backed by a basket of other fiat currencies which are, in turn, backed by nothing!"

    There's fiat currency and then there's fiat currency !! If it's a national fiat currency back by and controlled by a single government, then the currency is at the mercy of that government and they can choose to devalue it or revalue it as they please. If it is a fiat currency back by *several* governments, especially *nuclear-tipped* ones, then any one government cannot simple inflate that currency just to pay off its own debts because all the others will take strenuous exception to such unilateral actions !!

    Gold is yet another fiat currency. At one point, in the early 1800s, it was thought that Aluminium was more valuable than gold because it was so difficult to extract. Empress Josephine had a necklace made of aluminium and it was the wonder of the French court !! The other women gazed at it in envy and lust.

    Now we make double-glazing frames and drinks cans out of the stuff !! I chose aluminium because I know something about it; from getting the ore out of the ground to the processing of it, to flogging it in direct contracts or through the metal markets (e.g. LME), to the making of drinks cans !!

    The same may also happen to gold !! It is not the substance itself but the rarity value that is highly prized and hence "creates" the value !! Similarly for oil. If someone finds a method that will shortcut the millions of years of fossilising trees onto oil, then the price of oil will go through the floor !! Diamonds are bits of crystallised soot !! It has whatever value the major producers and buyers say it has. It has little intrinsic value per se!!

  • Comment number 48.

    No 44 "it's because people who want to buy these goods don't have enough money - it's not a lack of demand it’s a lack of effective demand (effective demand = demand with a wallet) … and the wallet is empty."

    You are both partly right and partly wrong. If there is no money, then there is no demand. OTOH, if there is a over-production, there is also little or no demand to produce more !!

    The Honda and Toyota factories are shut because their management are far-sighted and can see that simply producing more cars will not solve their problems. That will just burn away their cash reserves. Whereas, the American car companies are *STILL* trying to produce more cars even when they have masses of unsold ones rusting away because their philosophy is that production, per se, is good and sales is secondary. That is why GM went bust in a big way and Chrysler is getting there !!

    This philosophy is carried over to Vauxhall (GM UK), who are still trying to produce cars that simply fill up disused airfields !! The Keynesian concept that so long as people are still producing, there will be wealth. This concept does not allow for the fact that raw materials have to be bought and wages have to be found despite little or *NO* sales !!

    Now that GM has gone bust in a big way, some of their smarter people have migrated to China where GM has a joint venture with a local car maker and they will be running that is a much leaner and meaner operation. China is the only car market in expansion even while Europeans (UK, France and Germany) and the Americans are trying to "encourage" their people to buy cars with "subsidies" and failing miserable !! The backlog is already too great and producing more cars is like pouring more water into an already filled bath, the water just simply overflows !!

    Meanwhile the subsidies that had gone into the banking and car industries should have gone into something(s) more 21st Century - greener energy, perhaps or even biotechnology.

  • Comment number 49.

    No 45 "If cars are not people’s priority good, why encourage and support the car industry that is economically inefficient?"

    Heard of politics ?? The Austrian school is no match for political intransigence and conniving !! :-)

    It's not only the Communists and totalitarians that do central planning. Western Democracy also do it, albeit disguised as subsidies and state aid !! The US is the greatest culprit in this. What price cotton without US state subsidies ?? Ask the African cotton producers whether they think this is "fair" !! A French cow has better state benefits than an African farmer !!

    Arguing economic philosophy while all this central planning is going on is an exercise in futility !! These philosophies will never have the impact that politicians can bring to bear in their own self interest !! The credit crunch and the subsequent bailouts are an extreme case in point !!

  • Comment number 50.

    ishkandar # 47

    "Gold is yet another fiat currency."

    Sorry to rain on your parade chum but gold is NOT and has NEVER been a fiat currency. You need to understand that fiat (paper) money is given legal value or is made legal tender by government fiat. Fiat means authoritative command or decree (Latin, fiat: "let it be done").

    Gold emerged as a free market commodity money 5000 years ago and not, as you erroneously believe, by governments passing laws decreeing it as such.

    BTW, here are gold's average rates of appreciation in terms of major fiat currencies over an eight year period (2001 - 2008):

    1. USD - 16.3 percent.
    2. AUD - 13.3 percent.
    3. CAD - 13.6 percent.
    4. CNY - 13.5 percent.
    5. EUR - 10.8 percent.
    6. INR - 16.8 percent.
    7. JPY - 13.6 percent.
    8. CHF - 10.6 percent.
    9. GBP - 17.1 percent.

    It is interesting to note that gold appreciated 10.6 percent and 10.8 percent against the two best currencies, the Euro and the Swiss Franc. Both of these currencies are the "best" in the sense that less of their purchasing power has been inflated away compared to the other seven currencies.

    Against the two worst currencies that have lost the most purchasing power from inflation, the US dollar and the British pound, gold appreciated 16.3 percent and 17.1 percent respectively.

    We live in a world of freely floating exchange rates where fiat currencies bob up and down relative to one another. But in reality these currencies are not "floating". They are actually sinking when compared to gold. The purchasing power of every national currency is continually being eroded thanks to government policies, but this erosion is, for most people, difficult to see when currencies are viewed only against each other. The true picture only emerges when these paper currencies are compared to gold.

  • Comment number 51.

    Andronichuk (#45)"What this comes back to is the "Austrian theory of the Business Cycle" which myself and LibertarianKurt have been advocating here."

    It's an empirical description of bull and bear is it not? In a Command Economy, this could be regulated/managed to flatten out the highs and lows. That's why statist Command Economies are the evil empires of the world is it not? Have not nearly all the wars been over this economic conflict?

    In fact, why refer to this as the Austrian theory instead of say 'the Jewish theory'? Are not most of the protagonists (and beneficiaries) Jewish? Does this not explain why those from a group comprising about 2% of the US population account for most of the US Nobels in economics (the disproportionality is even greater when expressed as a proportion of all the world)? Those who promulgated this 'theory' had to flee Austria for London, New York and Chicago because of the devastation which Germans/Austrians thought it brought to their economies didn't they? Look what this economic anarchism has done to NY and London since...Look what it did to Russia in the 1990s.

  • Comment number 52.

    ishkandar # 49

    "Arguing economic philosophy while all this central planning is going on is an exercise in futility !!"

    A few of us around here are not willing to give up as easy as you do friend.

    ;)

  • Comment number 53.

    #36 - LibKurt

    Well, by 'backed' you mean natural scarcity. This is of course of decreasing relevance as technology and mechanisation improves.

    Ultimately, if the system was in a state where energy production in terms of kJ/g of gold was upward sloping (ie, increases in efficiency), and the total amount of gold extractable per kJ had a gradient of anything higher than the negative of that, then the amount of gold extractable, if humans so chose, would be exponentially increasing.

    An example:
    1)Current cost of energy production = 1000kJ/g
    2)if the cost of energy was decreasing at a rate of 10kJ/g
    3)and the current cost of extraction = 1g/kJ
    4)and the rate of change of cost of extraction = -0.1g/kJ

    But because the availability of gold is increasing, at 2) we must modify the energy cost to be a function of availabilty, thus rendering the maximum extractable quantity per year exponential, or something like it

    Now, the obvious objection is : "Ah well, we are only dealing with maximum extractable, that doesn't say what will be extracted and that is of course limited by human opportunity costs and the like"

    This however does not support the original idea, which is that gold is 'backed' by natural scarcity.

    The truth is, in the face of high technology nothing is sacred. If gold became really important, someone would use nuclear fusion to synthesise it.




  • Comment number 54.

    #38 LK

    Publicity. Well I don't know why you keep reacting as though I am totally opposed to everything you say or that the Austrians say. I fully agree that greater exposure to heterodox lines of thought is good for all. There are elements of Austrian school and any school of thought that are useful.

    As for your other comment about predictions, you are agreeing with me. It was someone else who said Austrians make predictions.

  • Comment number 55.

    Addendum (#51) A reminder of the NYC demographics (#5) Much the same is the case, but with much lower elite group numbers (but see the disproportionate represention in the House of Lords where this elite group is 10-20x over-represented), for London and Manchester (the two highest settlement areas).

    The figures to focus on are the other groups, their growth, and their mean cognitive ability/TFRs/SES. The statistics for Nobels etc can be readily found. When dealing with demographics and group forces on behaviour, one has to look at the statistics. To the best of my knowledge, this is all just descriptive statistics, but there is a historical pattern to this.

    The group most opposed to this school of political economics is the fastest growing one (curently 1.4 billion), i.e Islam, which proscribes usury.

  • Comment number 56.

    My concern is that all the measures that need addressed either globally or nationally are getting watered down or forgotten. If this G20 was deemed unremarkable this is perhaps another reason why we should be concerned. The bankers bonus issue is a classic example of consensus management and political ineptness and the result will be something way short of what is needed. It would be useful to track all the issues that were highlighted as learnings to be addressed as measure just how many got put to bed effectively. If we don't learn the events of last year will happen again before we know it.

  • Comment number 57.

    "Banks will certainly have to put aside more capital in the good years to insure against the bad - though ministers still have to decide exactly how much."

    MINISTERS have to decide exactly how much???

    Why not the central banks? That is EXACTLY what the B of E did before Thatcher deregulated them. Capital adequacy was watched like a hawk. If you fell short, down went your credit rating.

  • Comment number 58.

    #1 Stanilic

    HEAR, HEAR!

    I too am beginning to lose my patience

    Direct action will soon be the only option.

  • Comment number 59.

    Coment 27 JJ

    I am pleased to learn that some of your best friends are East European.

    Behaviour genetics sounds as deterministic as the eugenic experiments conducted by the Swedes on athletes in the Fifties which are now used as a basis these days for abusing the lower orders for having a poor diet.

    I find the quotations from Hansard for 1919 quiet symbolic. That was the year my father's family left the East End and moved to Hendon. My grandfather who was of Anglo-Norman-Scots origin with both Presbyterian and Catholic teaching had been beaten up by the British Botherhood for having a big nose. He was happy to take employment at Cricklewood sidings where he acted as shop-steward for a predominantly Hibernian workforce.

    The Roma are on my mother's side where all the academics in the family are to be found. This might help to explain why academia is such a treacherous profession.

    If genetics be a determinant of behaviour there is little hope for those of us who think it is all about income, environment and confidence, but then the business people, the topographers and the psychiatrists are all on my father's side.

  • Comment number 60.

    Methody1972 (#56) "My concern is that all the measures that need addressed either globally or nationally are getting watered down or forgotten. If this G20 was deemed unremarkable this is perhaps another reason why we should be concerned. The bankers bonus issue is a classic example of consensus management and political ineptness and the result will be something way short of what is needed."

    No. It is onlypolitical ineptness if this were a Command Economy 9something like Old Labour in the 60s/70s). It isn't. This is happening in Liberal-Demcoracies, i.e. free-market economies, aka libertarian/anarchistic economies (they'll make out otherwise because they wish to push it even further towards anarchism than it already jhas been).

    From this perspective, what you're seeing is a 'light hand on the tiller'. What you're seeing is minimal government control (good government in the markets' view) - i.e. just enough to make most of the electorate think that they have an effective government instead of theatrics. if Ne Labour is voted out, you'll get their shadow - The Conservatives or less probably, the Liberal-Democrats. What you will not get is the BNP as they eat babies etc.

    See 'Lights, Camera Democracy!'.

  • Comment number 61.

    Re # 45 from Andronichuk At 03:52am on 07 Sep 2009, Andronichuk wrote:
    'a important point has to be made... How many people buy a car or house with CASH? These sectors have been prompted up with cheap CREDIT.’
    First can I say that I am a fan of much of the Austrian micro-economics stuff as well as it's political side, Hayek's Constitution of Liberty and his Road to Serfdom are two of my favourite books - Where we diverge is on the Macro-economic front and I'm not so sure that the major issue is not just linguistic. You use the words CASH and CREDIT as if they were things of themselves and different from each other. When I talk about economics I tend to like to use schedules of numbers - made up simplified numbers to show the basic patterns of what is happening - this is because the English language is not adequate to describe what's happening in economics - but the language of Accountancy - balance sheets, double entry bookkeeping etc is designed for such things perfectly. So what is CASH - Cash is what is in your bank account, your bank account is what your bank owes you - For the bank to owe you money without being insolvent someone needs to owe the bank money – i.e. a business that has taken out a loan, or a home owner who has taken out a mortgage... i.e. your cash is just recycled credit. You say : 'people NEVER had the money to buy the cars, they bought on credit, and theoretically they should still be able to buy more cars now (because the cost of credit has gone down, artificially might I add)' - this works in English, but schedule it out : I pay you 100p to make a car and sell it to you for 110p, you have to borrow 10p to buy it and you have a 10/100 debt-wages ratio. Next month I pay you 100p to make another car and you have to borrow another 10p to buy it and now you debt-Wages ratio is 20/100 as this goes on your debt-wages ratio will be so high that you cannot afford to borrow more - no matter how cheap the credit is or how cheery your psychological state is. (You, by the way, are the combined workforce of the country, the car is the combined produce and I am the combined business).
    You say that at the moment and for quite sometime CREDIT is too cheap. Well if you read Hayek's The Pure Theory of Capital you'll see that Interest rates are, in real terms the reward offered to consumers now to restrict their consumption of consumer goods (called savers) so that production can be directed to the production of capital goods for some time. It's like being on an Island and the workers collecting 5 bananas per day for the consumers but some consumers agree to only eat 4 per day for a few months while some of their banana pickers are set to work to build say a boat that can sail to banana island and get loads of bananas really easily - The interest rate is the reward to the 4 banana per day eaters. This really only makes sense though when we are at the production frontier, when to make a car we have to close some shops down for a few months so the shop workers can build the cars - this is not the situation we find ourselves in : in real terms any interest rate above zero is ‘artificially too high’ – what consumption needs to be restricted to direct production to capital assets ? You say 'The idea you’re proposing is not different to the Keynesian approach. Where you first “kick start” the process of paying high wages to workers, so that they can then come back and purchase what they are making...the problem that arises is this: How much should you be paying them? Why? And what sector do you propose kick starting?' - Me a Keynesian ! Never ! See my article : What's wrong with Keynes ? What's wrong with Monetarism ? at http://www.worldnews.blog-city.com ' - I don't propose any kick starting at all. But what I do say is the problem is this : If you pay high wages or low wages or any wages to the workers to make a car - say 100p then they will have to borrow money - 10p to buy the car because the car will always be priced higher than the total amount paid out - the definition of profit. Also, given there will be a delay between getting paid to build the car - and the car appearing in the showroom, most of their wages will already be spent on paying their mortgage and things so they will have to borrow more than 10p - not just the profit amount (again we are talking macro economics here so these individuals represent the whole workforce, the cars represent the whole production...) – that’s the problem. In words - English - sentences like ‘so that they can then come back and purchase what they are making’ make grammatical and linguistic sense – but in numbers it just does not add up !
    You say when car prices start to rise and showrooms empty, this is a signal to producers: “People want more cars! Get us more workers! Open another factory!” This is how the market allocates labour, and this is the system I propose as a solution to the crisis, not government misallocation of resources, capital and labour.
    - 8 out of 10 for that ! The shortfalls are a) we don't need 'when car prices start to rise' to signal production - such jerky production works in economics lectures, but the main shortfall is once again this : How can the workers who were paid 100p to make the cars buy the cars for 110p month after month - under the present financial system they will run out of numbers.
    I'll check the you tube thing out in a few days when I have more time but I expect I'll see pictures of things 'going round' in cycles but no balance sheets and schedules - which don't go round in cycles.
    Please can I ask you to use schedules and balance sheets to number-ise your points so we are both talking the same language as it were. There is a spreadsheet on my website you can adapt for this purpose. Thanks GD

  • Comment number 62.

    GlenisD

    "If you pay high wages or low wages or any wages to the workers to make a car - say 100p then they will have to borrow money - 10p to buy the car because the car will always be priced higher than the total amount paid out - the definition of profit"

    The total amount of money in circulation must allow producers to consume what they produce. If money leaves circulation to go into savings, either into bank profits as interest repayments on loans, or into bank deposits as cash savings, then production will have to decrease to meet the reduced circulation.

  • Comment number 63.

    #60 Jadedjean

    "This is happening in Liberal-Demcoracies, i.e. free-market economies, aka libertarian/anarchistic economies (they'll make out otherwise because they wish to push it even further towards anarchism than it already has been)."


    Jadedjean, I ask you two simple questions...
    How has it been possible to have such low interest rates for nearly a decade?
    And secondly, when credit becomes scarse (credit crunch) and it contracts, HOW, oh HOW can interest rates go even lower?! (interest rates being the cost of credit)


    I always love this "they will deny we have had free markets because the shit has hit the fan" approach. We have had "free" markets (if you want to call it that)... but what use are free markets when governments distrort them? You can't have your cake and eat it.

    Also, can you remember the last time the UK or US had a ballanced budget?


    In response you your earlier post: "In fact, why refer to this as the Austrian theory instead of say 'the Jewish theory'? Are not most of the protagonists (and beneficiaries) Jewish?"

    I fail to see the connection. There are many jewish philosophers/economists on the exact opposite side: Noam Chomsky (left Libertarian), Naomi Klein, Richard Ferdinand Kahn..etc. I fail to see the importance in their backgrounds? Surely you are not dismissing their works simply because they are Jewish?


    And finally: "What you will not get is the BNP as they eat babies etc"

    I do not agree with the BNP's social attitude, but I do not simply dismiss them because of this (as the mainstream does). They are entitled to their views (as are you if you happen to be a supporter) and should be debated as are any other views.

    But their economic policies are just Soviet. Infact I just brought up their web page to read just how bad it is. Along the lines of "no imports", "manufaturing protected from international globalisation" (which means competition, because heaven forbid the chinese make something better and cheaper than we can).

    "the BNP will restore our economy and land to British ownership", This is the economic genius of Robert Mugabae at work, because his attempt to do the same worked out so well.

  • Comment number 64.

    re # 62 Thanks FrankSz for you quick response - fantastic we are at the heart of the problem ! You say 'The total amount of money in circulation must allow producers to consume what they produce’ - You state this as an axiom. De-axiomise it for a mo and try and prove it using the language on numbers : Start with a classic Desert Island with 1 businessman, 1 Banker and 1 worker. The businessman says the banker lend me 10 Island Currency units - which he does so the Bank has a balance sheet of Assets = Loan to Businessman 10, Liabilities = Current account of Businessman. The businessman pays the 10 units to a worker to pick some bananas and wants to sell them to the worker for 11 Units - Instant crash. There is NOT enough money in circulation to allow producers to consume what they produce'. if you disagree then please respond using simple balance sheets and simple schedules rather than just English words.

  • Comment number 65.

    Andronichuk (#63) "But their economic policies are just Soviet."

    Is this 'Soviet'? In fact, Old Labour and Stalin's post Trotskyite Russia had much in common did they not? The reason why the Road To Serfdom didn't explictly taget the USSR as the bete noir (in order to shape domestic poicy towards free-market anarchism) was because the USSR was still one of our allies. This is obvious if ou read the Webbs.

    Please don't play exception violates the statistical rule with me. Chomsky is an anarchist. What you will very rarely find amongst Jewish intellectuals is non-anarchists. There are some, and I have cited a few of them (e.g. Herrnstein, Gottfredson, Jensen). It is not because they are Jewish, it is a group propensity (see Kamin, Gould, Lewontin, Montagu etc, see the 1950 UNESCO paper on race) issue. See prevalence of behaviours by group as a function of genes and how this is effectively censored as politically incorrect even though it is scientifically true.

    If you don't see what I am referring to, I suggest you actively look. Begin with Stalin's battle with his opposition. Look at the ethnicity of the revolution and the functin it served. Then look into the Neocons and Chicago School, their heritage, and agenda. Then perhaps the work of Kevin MacDonald (see 'The Culture of Critique'). This is about biological group ('political') competition for resources. It's an animal thing. Se NYC demographics and history of migration. Then look at the group competition underlying the Credit Crunch/predatory lending. If you don't see it, you are one of the few who don't, it almost defines recent world politics ('The Clash of Civilisations' and 'War on Terror')..

    It use dto be the case that when observed - expected was significant, rationality demanded an explanation. Today it appears to demand censure, censorship, obfuscation and self-deception....

  • Comment number 66.

    Addendum (#65) "This is the economic genius of Robert Mugabe at work, because his attempt to do the same worked out so well."

    Check out the mean cognitive ability of sub-Saharan Africa. Bear in mind the demographics of NYC (and London) as you do so. Then look at 'America's Perfect Storm' (ETS, feb 2007), OECD past predictions given the workforce, PISA data, SATs data, European/Liberal Democracies' below replacement level TFRs, dysgenic fertility, crime rate, and the Leitch Review from the UK Treasury in 2006.

    Try to see the bigger picture. See what Narey said about Care? See what they are now doing about waiving the 2m previously demanded from 'sponsors' of the 200 or so academies (out of well over 4000 secondary schools) most of the latter can't select their intake whilst academies can to some extent). Why is the Conservative shadow Education minister so pleased, and yet his eyes look just a little bit odd when he is speaking on TV? What's in all those prime location inner city schools for 'sponsors' given that cognitive ability is nearly all inherited.

    It's very convenient to forget/censor what diversity really means and how and why it comes about. Why is that so relevant to 'economics' ;-)

  • Comment number 67.

    61# GlenisDevereux

    Firstly in response “You use the words CASH and CREDIT as if they were things of themselves and different from each other”
    They are quite different to each other, why? Well for this I need to take a short sidestep to illustrate (numerically) how the banking system works.
    1. I(representing the public) take 100p and deposit it into a bank(representing the whole banking system)
    2. The bank reserves a fractions (lets say 10%) and lends the rest out (this is how they work after all) and makes a profit on the difference in interest rate.
    3. 90p (which has been lent out) works its way through the economy, and is redeposit into the bank.
    4. Bank reserves a fraction (now 9p), and lends the rest out (81p)
    5. 81p is deposited into the bank.
    6. Bank reserves a fraction (8.1p) and lends out the rest (72.9p)
    What has this done? Of the original (and FIXED) amount of cash (100p) deposited into the bank, the bank (banking system) has lent out 243.9p after only three re-deposits. This is an increase of 143.9% of the availability of credit which does not correspond to the REAL availability of cash. What this means is that the supply of credit is multiplied, and as we all know when you increase the supply of something, its value goes down (ie: the cost of credit: Interest rates).
    This is the key difference between Cash and Credit here. If the cost of credit accurately reflected the availability of cash, interest rates would have been far higher, and less people would have been able (willing) to make so many purchases on credit. Hence me saying “people NEVER had the money to buy the cars”, not all people of course... there would still have been those willing to take out loans for such purchases, but what I am trying to say is that it would have been nowhere near as many people buying luxury things as easily a we have seen.

    Now to your worker purchasing cars illustration. Well the problem you have identified rests on “the profit makes the gap between workers pay and the cost to purchase what they make, so they are running in circles accumulating debt to make up the difference”.
    Well, what is the solution? Raise workers wages? Well that wont work because then the cost of production will go up and so will the car prices...hmm.
    lets say that the car company sells its cars at break even, exactly 100p. Will the problem be solved, well of course not. Because labour isn’t the only thing needed to make cars. Of the 100p cost to make a car, even if 1p went on materials and 99p on labour, we still come back to the problem.
    What about the car companies selling the cars for 99p, well... they wont be able to do that for very long without going bust will they?

    So how do I explain the solution? Well, workers produce more than they consume, through “specialisation”, “division of labour”, “technological advances”...
    This is now making a simple example a lot more complicated (I apologise, but this is exactly how complicated the markets are, and for this reason command economies fail).
    I’ll try to illustrate in as simple an example as I can:
    Lets say we start with everyone on their land, working the fields (makes 100p worth of goods). Each consumes all he produces and the system works (paid 100p, consumes all 100p worth of goods).
    One farmer discovers a method of farming which allows him to specialise and produce more than he consumes (now produces 200p worth of goods)...
    he can then sell this excess on the market (100p). The availability of this excess allows other farmers to drop farming and do... carpentry... paying for the food with the sales of their furniture. Other farmers now no longer need to work the fields or make their own furniture and so can do... house building. And so on and so forth. The system develops, people specialise, they can produce more for less, costs go down, people can afford more, with more money left in their pockets, they can spend it elsewhere.... This is all just Adam Smith really.

    What it comes back to (quite nicely), is that prosperity should not be measured in terms of “how much you can consume” (consumerism), but how much you are able to produce.

    Bringing this all back to “how can the worker afford a car?”, well through savings. The worker’s situation improves with time. He saves money and eventually allows himself to purchase a car. Let’s go back to agriculture (the most basic of industries). Can a worker on the fields not afford to purchase the food he is harvesting? They can, why? Because of “technological advances”, “specialisation” etc... Food production has moved from being labour driven. This allows for more efficient production of food, leading to falling prices and fewer workers needed on the fields (simply needed to watch over the harvesters etc) and they can now go and do things in other sectors of the economy. The workers that are still needed can of course afford to buy the food they are making (and with time even more). And so civilization moves forward, and other sectors take on this framework and so on and so forth.
    I’m sorry for making this post so long, but this really is complex intertwined stuff we are discussing here.

  • Comment number 68.

    #64 OK. Have to b later, will have a think and get back this evening I hope.

  • Comment number 69.

    #67

    "What this means is that the supply of credit is multiplied, and as we all know when you increase the supply of something, its value goes down (ie: the cost of credit: Interest rates)."

    No. What you fail to acknowledge is that the loan is secured. What determines the value of the money involved in the credit creation is the *threat* that if the debtor does not *seek out money to repay the debt* then their home/possessions will be *seized by force*.

    That is the source of the value of the money. In this case, the credit CAN expand and value CAN be preserved. (I am not saying it must...)

  • Comment number 70.

    Re #67 Andronichuk : You start off with : 1. I (representing the public) take 100p and deposit it into a bank (representing the whole banking system) well no you don't - 100p is money and money is what a bank owes you. If you are talking about Bank of England Debt then that is not essentially different. A 100p note says the Bank of England owes the holder 100p. Bank Notes are shown as a liability on it's balance sheet. 2) You say The bank reserves a fractions (lets say 10%) and lends the rest out - Ok lets look at a balance sheet to show this is not true at all. I go to a new Bank and borrow 100p so their balance sheet shows Assets - loan 100p, Liabilities 100p. This liability of the New Bank is my Asset - my 100p is money. Say I pay this 100p to someone to sing me a song. What they do is they take that 100p and deposit it in their bank. So the Second Bank has a balance sheet that says Assets 100p interbank loan from 1st bank, Liabilities 100p current account singer. So what you are saying is someone comes into the bank and borrows 90p from this bank. You use English words like 'lends the rest out' - these words imply that if the singer went to check his balance after 90p was 'lent out' then there would only be 10p in his account - can you see my issue with the inadequacy of English when discussing these things ? - No such thing happens. If the second bank ‘lends out’ 90p to a new customer then all they would do is the double entry of Debit Loan 90p Credit Current account 90p. This way the singer still has 100p in his current account and the new person has 90p in their current account - a new 90p has been created - there is no need to 'work the 90p through the economy’ - the bank could quite as easily have loaned out 150p – its balance sheet will still have balanced. Banks are required to hold a very small percentage of their balance sheet size at the bank of England - so they do, but to claim this balance is real money that is the base of banking is a total fiction.
    You talk about the REAL availability of cash - Notes and coins are produced merely as a convenience for shoppers, they are no more 'real cash' than any of the 243.9p of current accounts in your example. or the 190p in mine. Money is just ‘what a bank owes you’ You say 'This is the key difference between Cash and Credit here. If the cost of credit accurately reflected the availability of cash, interest rates would have been far higher, and less people would have been able (willing) to make so many purchases on credit… what I am trying to say is that it would have been nowhere near as many people buying luxury things as easily a we have seen.' - That's very 'financial' of you, if we can physically afford to make these cars then why should we not have them due to the rules of a financial game that is made up and clearly out of date as it will say we cannot afford things when we physically can – it does not reflect reality- should we not change the financial system to match our reality rather than wreck our reality to match some strange artificial numbers on a piece of paper or blocks of metal in a locked room?
    You say ‘So how do I explain the solution? Well, workers produce more than they consume, through “specialisation”, “division of labour”, “technological advances”’ - I agree.
    Lets say we start with everyone on their land, working the fields (makes 100p worth of goods). Each consumes all he produces and the system works (paid 100p, consumes all 100p worth of goods).
    One farmer discovers a method of farming which allows him to specialise and produce more than he consumes (now produces 200p worth of goods)...
    he can then sell this excess on the market (100p) - I disagree the farmer can produce say 2 tonnes of potatoes instead of 1 tonne - people don't make money they make stuff - only the banking system makes money the value of the 2 tonnes on the market is up to the market to decide and the market's decision is effected by there being the same amount of wages paid out as last time so assuming there is no more money in the economy he produces 2 Tonnes of potatoes that cost him 100p to produce – if he sells at cost then the price per potato falls by half but the total price of all potatoes stays at 100p the cost of each. You say ‘The availability of this excess allows other farmers to drop farming and do... carpentry... paying for the food with the sales of their furniture. Other farmers now no longer need to work the fields or make their own furniture and so can do... house building. And so on and so forth. The system develops’ – it can happen this way but it can also happen like it did in the Luddite times when the workers were no longer needed people went hungry or started to produce things that were not wanted or needed in order to get some food – lets face it the vast part of our economic activity is just producing so much waste produce.
    You say ‘This is all just Adam Smith really. 'costs go down, people can afford more'’ - they can afford more per 100p but as all costs go into prices and then some is added on top for profit, despite physically doing things fine they will end in a financial mess.
    Bringing this all back to “how can the worker afford a car?” well through savings - Saving make things even worse ! When workers are paid 100p to make a car and save 50p, they have 60p to make up to buy the car for 110p - so no sale. Next month the car company with zero sales pays the worker another 100p and he again saves 50p and there is no sale. It's only after he has made 3 cars that he can buy 1 car - how is this an improvement ? We have lots of people making cars which are not sold - the real life situation we have at the moment. How long can a company go on selling 1 out of 3 cars it makes ? Adam Smith had lots of great things to say but his basic accountancy and understanding of Banking - like Keynes, Friedman… was a bit flaky ! – My Solution is NEFS Net Export Financial Simulation.

  • Comment number 71.

    Andronichuk (#67) "..but this really is complex intertwined stuff we are discussing here."

    But then, the Austrian school's outpourings, as with all Kabbalah, is mere metaphysics, and is unfalsifiable. It's transcendental you know.

    It's therefore a magnet for narcissists. This is the stuff that wars are made of. :-(

  • Comment number 72.

    #70 GlenisDevereux

    I would have to say that I largely disagree with your interpretation of how the banking system works.
    An error you have made in your deduction is : “You use English words like 'lends the rest out' - these words imply that if the singer went to check his balance after 90p was 'lent out' then there would only be 10p in his account”
    No I never said that if he went to check his balance after 90p was lent out there would only be 10p left in his account... what I mean to say is that there will only be 10p in the bank vaults. This is why banks collapse and we have central banking. When confidence in banks fails, and we have a “run”, as with Northern Rock, the bank is unable to pay every depositor their money back because it is not physically there in the vaults!
    The bank only keeps a fraction of the deposits to account for day to day, small sum transactions and withdraws (one of the reason you are limited to how much money you can withdraw per day). Central banks are needed to (arguably) provide liquidity to banks in the case of a “run”, so they will lend them liquid assets (cash) to fulfil the demand for withdraws.
    Money does not sit idle in banks, otherwise they would make no money. They pay you interest for your deposits, where do they get the money from to pay that interest? They lend your money out at a higher rate of interest and profit the difference. They are acting as a middle man to you lending money to someone else, whether the public knows this or not is another matter.

    In terms of balance sheets: Where do banks get the money to lend out in the first place?
    Deposits right?

    So: you deposit 100p, bank has liability of 100p + rate of interest they pay you (lets say 5%) = 105p of Liability.
    Bank lends out 90p (this loan is an asset) + rate of interest (10%) = 99p + 10p (10% reserve rate, money actually in the vaults) =109p of Assets
    Profit made= 4p.

    Does this make sense?

  • Comment number 73.

    No 50 "Sorry to rain on your parade chum but gold is NOT and has NEVER been a fiat currency. You need to understand that fiat (paper) money is given legal value or is made legal tender by government fiat. Fiat means authoritative command or decree (Latin, fiat: "let it be done")."

    No ?? Have a look at the Spanish history between the middle of the 1500s to the end of the 1700s. The Spanish "acquired" so much gold and silver from their American "colonies" that they had galloping inflation. Gold, per se, has little intrinsic value. It is a soft metal that has little structural use. Its only value is its rarity and the price people are willing to pay for it. If there is too much gold around then the price will be whatever people want it to be, i.e. "Let it be so"; i.e. "fiat" !!

  • Comment number 74.

    #73 Ishkander, the argument you are having with LibertarianKurt right now is the same one (or rather similar) that Mises had with the Keynsians and Friemanites in the 60s-70s.

    Mises was arguing that Gold was giving the Dollar value (this was during breaton woods) and the mainstream economists all agreed that this was false, saying (much like you are) that there is no intrinsic value in gold.

    "Keynesians and Friedmanites alike maintained that the gold bugs were dinosaurs. Whereas Mises and his followers held that gold was giving backing to paper money, both the Keynesian and Friedmanite wings of the Establishment maintained precisely the opposite: that it was sound and solid dollars that were giving value to gold. Gold, both groups asserted, was now worthless as a monetary metal. Cut dollars loose from their artificial connection to gold, they chorused in unison, and we will see that gold will fall to its non-monetary value, then estimated at approximately $6 an ounce."

    "What then of the laboratory experiment? Flouting all the predictions of the economic Establishment, there was no contest as between themselves and the Misesians: not once did the price of gold on the free market fall below $35. Indeed it kept rising steadily, and after 1971 it vaulted upward, far beyond the once seemingly absurdly high price of $70 an ounce.[3] Here was a clear-cut case where the Misesian forecasts were proven gloriously and spectacularly correct, while the Keynesian and Friedmanite predictions proved to be spectacularly wrong. What, it might well be asked, was the reaction of the Establishment, all allegedly devoted to the view that “science is prediction,” and of Milton Friedman, who likes to denounce Austrians for supposedly failing empirical tests? Did he or they, graciously acknowledge their error and hail Mises and his followers for being right? To ask that question is to answer it."



    This is taken from Murray Rothbard's "the case for a 100% gold standard".
    (To Administrators, no copyrights have been broken, this text is published online by the mises institute here: http://mises.org/story/1829. They have the copyright to this text)



    And who says Austrians cannont be proved right with empirical evidence?

  • Comment number 75.

    Andronichuk (#74) "the argument you are having with LibertarianKurt right now is the same one (or rather similar) that Mises had with the Keynsians and Friemanites in the 60s-70s.

    The first thing you need to know is that science/knowledge is not about argument. Argument is a logical process about validity, and has nothing to do with content or truth per se.

    "And who says Austrians cannont be proved right with empirical evidence?"

    The second thing you need to know about science (and reality) is that hypoteses/theories are not proved right by evidence. Science, like engineering, is all about designing and testing what one thinks is the case to destruction - via falsification. We lok for ever greate conjunctions and make predictions from them. We only learn when our expectations are violated, i.e. when our predictions are falsified. It's modus tollens not modus ponens. One can not learn by being right. Science is about trying to prove oneself wrong, and seeking criticism - hence teh experimental/empirical method. This, from posts to this blog, is the opposite of what the Austrian Schoolers and other metaphysicians/spin doctors engage in. YOu also need to learn about the intensional idioms of propositional attitude and make sure you don't use them in explanatory positions. This is where so much of 'economics' goes wrong. The true science of people and choice is Behaviour Analysis (a branch of which is Behavioural Economics, but steer clear of Kahneman - look to Rachlin and Herrnstein both Jewish - it will take you to Skinner and Quine ;-).

  • Comment number 76.

    ishkandar # 73

    http://www.youtube.com/watch?v=5SDZRh-KDV4

    In addition to Andronichuk's comment above, perhaps this will illustrate the point being made.

  • Comment number 77.

    Ishkandar, Kurt, Andronichuk etc.

    Is it not more relevant that since the 1960s we have seen the following:

    - UK house prices rise from £3.1k in 1963 to £224k in 2008
    - UK Money supply M4 rise from £1.5bn in 1963 to £276bn in 2008
    - Gold rise from $35 per ounce in 1963 to nearly $1,000 today

    There can only be one clear explanation: covert inflation, i.e. currency debasement:

    http://www.telegraph.co.uk/finance/economics/6146957/China-alarmed-by-US-money-printing.html

    "He who goes borrowing, goes sorrowing"

    We have borrowed from the future, for it is not around to complain about it. Many an empire paid dearly for this folly.

  • Comment number 78.

    71.
    jj Maybe you could apply the discipline of 'falsifiacation' to your own tired dogma ?

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

  • Comment number 79.

    77# Hawkeye_Pierce

    EXACTLY! Currency Debasement along with a inflated supply of credit (as a result of fractional reserve banking) has inflated prices by eyewattering ammounts...
    But hey, who would believe two crazy Libertarians such as Kurt and Myself?


    If your interested, tell me what you think of this: http://lpuk.org/pages/manifesto/economy/monetary-reform.php

    (I am a party members, I don't hide this)

    How many politicians (with perhaps the exception of Mr Hannan) actually understand this?

  • Comment number 80.

    FOR CONFUSED 'LIBERTARIANS' OF THE BLOG

    What you will see above is the classic wriggling of one lost in the intenSional. Anarchism is right wing. The left wing is statist. Stalin purged teh anarchists in the late 20s and 30s. The anarchists were free-marketeers whether they knew it or not. That's why Trotskyism and teh New left are one and the same. Their allies are the Neocons (ex Shachtmanites). In 1905/1917, the original Bolsheviks (International Socialists/Social Democrats) came from NYC and other places of exile/asylum. Their job was to undermine the Tsarist state to get Russia off the Germans' Eastern Front. The Russification which followed after Lenin's death was the establishment of state socialism, very much as Old Labour planned/partially implemented in the UK after 1945. It has been progressively eroded by anarchists in the guise of the Conservatives (see Disraeli originally, via the expansion of the franchise), and most aggressively under Keith Joseph with Thatcher as front, and one does not have to look too far to see who was behind Blair (se the funding debacle). It has been cleverly done, and still is being, insidiously done.

    Judge these parties by their actions (behaviour) not by their nefarious rhetoric (words). The UK is being Balkanized and asset stripped, and education has been flooded with low ability people. In the 1960s we sent 5% to university, now it's nearly 50%. There are twice as many males as females with IQs of 120, and above that the proportion of male sto females rockets - this is because of he narrower (more conservative) range of the female distribution. Why are there more females than males going to 'university', and why are the subjects chosen predominantly the arts/verbal?

  • Comment number 81.

    Hawkeye_Pierce (#77) Nice post, and a timely link.

  • Comment number 82.

    Here is an interesting documentary clip about the situation in Zimbabwae.
    Note that this has nothing mentioned about Austrian Economics, Mises, Hayek, Gold Standards etc...

    But it is a facinating case study that seems to be playing out along Mises' "regression theorem".

    Kurt you've probably seen this, ishkandar you should find this interesting.

    http://www.youtube.com/watch?v=7ubJp6rmUYM



    JadedJean: In response to your post on Libertarianism and Anarchism. I don't have the time or wish to get into the long winded philosophical/pollitical discussion about where exactly "Libertarianism" lies on the political spectrum. Rothbard is known as an "Anarcho Capitalist", his use of "Anarchism" is similar to Hayek's use of "Liberal". When he talks of "Anarchism", he talks of "Anarcho Capitalism", when Hayek talks of "Liberalism" he talks of "Classical Liberalism", not the so called "Liberalism" of today.
    Libertarianism as a school of thought has many churches, Anarcho Capitalism, Minarchism, Classical Liberalism, Austrian Economic School, Chicago Economic School, Libertarian Conservatism and so on...

    But this Libertarianism is different from "left libertarianism" and "anarchism"... because the Libertarianism me and Kurt and Rothbard are advocating takes into account "private property rights". I'm gonna leave it at that.

  • Comment number 83.

    ...and so the G20 did what needed to be done. Meanwhile in the real world child homelessness continues to increase

    http://www.nytimes.com/2009/09/06/education/06homeless.html?_r=3

    Maybe it is all the fault of the children, because it certainly cannot be the fault of the financial oligarchs, none of whom are likely to have homeless children of their own.

  • Comment number 84.

    #80 Jadedjean. Unsurprising to see that Russian history is just one more subject that you are only tangentially acquainted with. Try reading some Tyuchev - specifically the bit where he cautions "Russia cannot be understood with the mind"

    But then what would a Russian know about Russia?

  • Comment number 85.

    Comment 80 JJ

    You are trying to rewrite history and redefine politics.

    May I refer you to Eysenck a psychologist I think you will appreciate.

    He postulated a theory of political belief that applied the Left to Right criterion as one axis and Authoritarian to Libertarian as the other. This meant that Stalin was a Left Authoritarian, Hitler a Right Authoritarian, Piotr Kropotkin a Left Libertarian and so on.

    Eysenk got heavily into IQ testing. He undid himself by forgetting how cultural factors can impact on IQ. In other words he adopted a too rigid, and dare I say `scientific' doctrine. He failed to look outside the box and so an intersting career came to a sad and abrupt end.

    Whilst those of us who come to know the way you think can accomodate your point of view, you might find the broader spectrum a bit more intimidating.

    I would like to engage with you on your definition of anarchism, the life and times of Benjamin Disraeli and the role of Lenin in the creation of Soviet Russia but life is too short. I would however suggest that you expand your reading in those areas of history and political thought as there is a lot you can learn there.

  • Comment number 86.

    superiorsnapshot (#78) Either tell us how one can learn something which one already knows, or please keep quiet. 'Surprise' is the sine qua non for reinforcement.

  • Comment number 87.

    #77

    This is true, money supply has risen exponentially since being unhooked from gold by Nixon. The fractional reserve credit money economy gives rise to this.

    However, simulations have shown that there is nothing wrong with this model, per se. An economy can operate with endless debt money creation. Ultimately it doesn't matter if a potato costs 1 dollar or a 1million dollars, the number and the unit are arbitrary labels for cost.

    It is therefore a little misleading to point at M4 increase and say 'look, there is the root of evil'. This is something the gold bugs are guilty of too. I don't say that with malice.

    The real problem is that:
    a) This system of endless credit creation has been US-centric since Bretton Woods fell. Periodic crises have been remedied by US-centric institutions at he expense of peripheral economies.
    b) The system of endogenous credit creation becomes a chaotic dynamic system when borrowed money can be invested in non-productive assets and result in asset price inflation and speculation. This introduces a feedback loop, it allows for debt levels to increase without increases in real productivity, it allows for the burden of debt to increase for a given GDP. THis is behaviourally analogous to Ponzi investment.

    If the ability to speculate on assets using borrowed money was removed or reduced gratly, then the system of endogenous never-ending credit creation (and inflation) would work and be stable.

  • Comment number 88.

    Andronichuk (#82) "I don't have the time or wish to get into the long winded philosophical/pollitical discussion about where exactly "Libertarianism" lies on the political spectrum"

    Of course you don't. You are posting here for self-interest/entertainment, not to learn anything....

    You are radically confused, and the plethora of variants above is grist to my mill.

  • Comment number 89.

    armagediontimes (#84) "Unsurprising to see that Russian history is just one more subject that you are only tangentially acquainted with. Try reading some Tyuchev - specifically the bit where he cautions "Russia cannot be understood with the mind"

    Errmmm yes, leaving the 'mind' bit aside fo now, what exactly is one supposed to understand it with? I take it you read the Hansard links from 1919? Or was that too 'mindful'?



  • Comment number 90.

    86 ~ You can't without resorting to dogma !

  • Comment number 91.

    Glenis Devereux

    I *will* get you a response. Now I am out of time. I will try to generate an XLS model and then somehow describe the model and put the tabulated results here. It will of course be a bit awkward.

    This is about modelling dynamic systems, and crucial therefore are rates of flow. This will mean several parameters, rows etc.

    How do you want to distinguish between deposit money and 'currency'? I propose in the model that there be no difference. Holding cash is to all intents and purposes the same. Is there any crucial difference that needs to be modelled in your opinion?

  • Comment number 92.

    MAKING OMELETTES

    superiorsnapshot (#90) The difference between dogma and scientific conjecture is that the latter is potentially empirically falsifiable, in fact, that's why it's pragmatically useful. This is put into practice all the time in medicine, engineering etc - think of standard diagnostic blood tests, or in education Cognitive Ability Tests and Key Stage 3 and 4 performance. Austrian/Chicago School Libertarian economists on the other hand appear not to make useful predictions but explain everything after the fact perfectly, and yet when the unexpected happens, they don't learn.

    What does that tell one?

    When expectations are violated, one must tolerate some heat.. ;-)

  • Comment number 93.

    No 74 My point is not so much that of the Keynesians, etc. as that anything of scarcity value can be used as a "standard" !! In various science fiction stories, it was postulated that in the future, there will be either "energy credits" or "unit of work credits" !!

    Energy credits sounded the more realistic of the two since it will force those governments that squander their credits to lose production due to a lack of energy.

    BTW, $6 in 1944 (Bretton Woods) is worth a lot more than $6 now !! However, no account had been taken of man's desire for peacock finery and gold still plays a part in that !!

  • Comment number 94.

    #92 JadedJean


    "Austrian/Chicago School Libertarian economists on the other hand appear not to make useful predictions but explain everything after the fact perfectly, and yet when the unexpected happens, they don't learn"

    Pardon me, but did I not make it clear in a previous post how Mises accurately predicted that the price of gold at $35 dollars an ounce was artificial during the breaton woods system because of the inflating of the supply of dollars by the federal reserve, a view not shared by mainstream economists (who thought its true value was at 6$). And after 1971 when the tie was cut not ONCE did the price of gold fall below $35 dollars, but rocketed!

    How about Mises' regression theorum? Something written decades ago yet being demonstrated in modern day Zimbabwae. Where money is destroyed by inflation and people resort to other money for exchange purposes... notably precious metals because of their qualities making them well suited to be a medium of exchange. What year did Mises write his theory and what year are we applying it to?

    What about the Austrian Economist's predictions about the currect crisis, explaining the fact that a decade of cheap interest rates has helped fuel an artificial boom and that the bubble was about to burst. I think the only critisism of their prediction mentioned in this thread (somewhere at the very top) is that they did not have a precise time scale, and thus they were "unscientific".


    Here are just 3 examples I have repeated over and over again in this thread. In each Austrians had predictions prior to events, and the events that followed appear to prove them correct. It seems that anything said to you falls on deaf ears.

    I get the feeling that you just have it in for the Austrian School regardless of what it says or does. Incredibly dogmatic wouldn't you say?

  • Comment number 95.

    No 87 "This introduces a feedback loop, it allows for debt levels to increase without increases in real productivity, it allows for the burden of debt to increase for a given GDP."

    This is a problem that had happened time and again. The Romans had a gold and silver coinage but they also had debts. So long as the empire kept expanding, they could cover their debts will increased tax bases and land grants. When the empire stopped growing or, even worst, started shrinking, the debts were harder and harder to service. All those "bread and circuses" didn't help their debt burden either although it did channelise the mob dissatisfaction for a while !! Their hiring of barbarian mercenaries, that were cheaper than Roman legionnaires, was their equivalent of the modern imports of cheap goods, an attempt to export inflation.

    When the barbarians decided to stop being hirelings and start being masters, the Romans were powerless to stop them because the real "Roman" legions were greatly reduced in numbers and were, in any case, stationed in the East to face off the Persians and the assorted steppe nomads sweeping in from Central Asia. The modern equivalent is Britain's decimated manufacturing base and the attempts to get it to plug the financial hole caused by the failure of the financial "industries" !! The bread and circuses don't work any more and someone has to pay the bill !!

  • Comment number 96.

    I just discovered another example of mindlessness in the BBC profanity filter !! It rejects the word "H*n" despite the fact that Attila was a very famous historic person from that tribe !!

    This is the equivalent of a spellchecker accepting "grate" in the place of "great" in a sentence !!

    Perhaps that someone who instituted the profanity filter can devise a program that can also successfully translate the following into a foreign language -

    Time flies like an arrow.
    Fruit flies love rotten bananas.

    AI !! Don't we love 'em !!

  • Comment number 97.

    Sorry jj, but you, that is you personally, cannot resort to falsification and maintain your own dogma.

  • Comment number 98.

    Hun

  • Comment number 99.

    Ishkandar

    I wonder how much of religious morality isn't evolutionary historical knowledge.

    When we look at the economy, then the following
    "Gambling is a sin"
    "Debt must be forgiven every seven years"
    "Debt is a sin. Islamic finance relies on joint ventures"
    etc etc
    begin to seem more comprehensible

    ?

  • Comment number 100.

    #89 Jadedjean. It is my understanding that the "mind bit" is central to the observation.

    Still at least you are asking the right question. The answer, if you get there, may be illuminating.

 

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