Welcome to the new version of European Tribune. It's just a new layout, so everything should work as before - please report bugs here.

LQD: So who's the chicken little?

by Frank Schnittger Mon May 5th, 2008 at 08:52:04 AM EST

I am not an economist, and far be it for me to cross swords with the economic gurus on this site.  But I have been perplexed by the sometimes radically different takes on the world economic crisis that I read here and in other sources - not all of which can be easily explained away by the differing interests or blinkered vision of the "Murdoch Mafia" and other MSM.  A recent case in point runs as follows:

Credit crunch fails to produce the feared economic catastrophe | Anatole Kaletsky: Economic View - Times Online

So the sky did not fall in. While the Chicken Littles of the world economy, led by Gordon Brown, George Soros and Warren Buffett, may still repeat mechanically the IMF's surprising judgment that the world - especially America - faces its worst financial crisis since the 1930s, their hearts are no longer in it.

So perhaps the ET economic illuminati can put me straight?


Credit crunch fails to produce the feared economic catastrophe | Anatole Kaletsky: Economic View - Times Online

Mr Brown, after last week's election woe, can no longer blame the world economy for his political failure. Mr Buffett, having speculated against the dollar for years and declared that credit derivatives are financial weapons of mass destruction, has finally begun to find attractive opportunities to invest his money and told his shareholders last week that the worst of the credit crisis was probably over. Mr Soros, in his forthcoming book, The New Paradigm for Financial Markets, states unequivocally: "We are in the midst of a financial crisis the likes of which has not been seen since the Great Depression." But after making $3 billion for Quantum Endowment Fund by anticipating last year's bear markets, he is now hedging his bets, as is only to be expected from the world's most successful hedge fund manager. "I may well be proven wrong," he told The New York Times last week, adding that he might yet again turn out to be "the boy who cried wolf".

Anatole Kaletsky concludes his piece by saying:

Credit crunch fails to produce the feared economic catastrophe | Anatole Kaletsky: Economic View - Times Online

None of this means that the credit crunch has been a storm in a teacup, as I originally thought. Changing attitudes to borrowing and lending will have a dramatic impact on the world economy, reducing long-term growth in consumption in economies that have been driven by powerful housing and mortgage cycles, including Britain, Spain and France. As Mr Soros says in his book, global growth can no longer rely on these economies and must depend on consumption and infrastructure investment in China, India and other emerging markets. These are momentous changes, and while they are quite far advanced in America, they have hardly started in Britain and Europe. But if economic news continues to deteriorate for a while - as it almost certainly will in the UK - investors and business should realise that the really important story in the world economy today is not the threat of a sudden collapse in the financial system, but a gradual long-term adjustment in the world economy in favour of emerging markets. This may at times be an uncomfortable process - but the sky will not fall in.

So its all just a process of adjustment - reflecting the greater power of the "emerging markets" and nothing to do with the apocalyptic visions of the naysayers and doom mongers who are always predicting the demise of the capitalist system.  Indeed  the USA is far more advanced in the process of adjustment to these new global realities than Britain AND Europe.  This is not market failure, but a period of adjustment to a new Global Market.  

Hooray for the markets - they always get it right in the end - and leave those market meddlers trailing in their wake.

The article seems to reflect the equanimity of the new global elites to regional crises - even in a market as large as the US.  They can always move their money around and let the little people pick up the pieces.  Invest in the "emerging markets" seems to be the message, and the older US and European markets will soon find their new (lower) level in the global scheme of things - as their housing cycles runs their course.

So there will be no major recession.  The real economy has weather the storm.  The financial markets are returning to "normality", the Dollar's downward readjustment has been completed.

Credit crunch fails to produce the feared economic catastrophe | Anatole Kaletsky: Economic View - Times Online

To pessimists, this means that the worst is still to come, since the real consumer reaction to falling housing wealth and bank deleveraging has not even started. An alternative view more consistent with economic theory and historic experience was suggested by the Bank of England's Stability Report last week: "Credit markets are likely to overstate significantly the losses that will ultimately be felt by the financial system and the economy as a whole . . . They will exaggerate to an even greater extent the potential damage to the real economy."

Indeed it is all a case of the hysterical over-reaction of the "chicken littles"

Credit crunch fails to produce the feared economic catastrophe | Anatole Kaletsky: Economic View - Times Online

As noted in that report, the pricing of many bonds and credit derivatives in financial markets already assumes bigger losses from US sub-prime mortgages and other dubious assets than anything implied by plausible worst-case scenarios. This is true of highest-quality credits, with AAA and AA ratings, whose unexpected collapse has done the greatest damage to bank balance sheets. The Bank's sums suggest that the highest-quality mortgage-backed bonds are now undervalued by 25 per cent (see chart). It now seems that, contrary to the Chicken Little rantings of many analysts in the City and Wall Street, these bonds face almost no risk of serious defaults even in the event of far bigger falls in US housing prices than any that have happened so far.

Indeed, the Bank's calculations suggest that present pricing of mortgage-related bonds in financial markets has probably overstated the future losses on US sub-prime lending by about double.

So everything in the garden is rosy (almost).  The pessimists have over-reacted (as usual).  Unfortunately many little people will lose their homes, some will lose their jobs, others will have the value of their pensions eroded by investment losses and inflation - but these factors do not merit a mention in the analysis.  The key message is that the good times are back.  It's a good time to buy (if you have the money) but make sure you move your money off-shore and away from those grasping politicians who are only looking to scapegoat you for their own failure to adjust their economies in line with global realities.

Hooray for the markets.  Good old capitalism has come through (for us = the elite) again.

Will someone please set me straight?

Poll
The world is on the Brink of the biggest recession since the Great Depression
. Yes 62%
. No 25%
. Maybe (only a permissable response for economists) 12%

Votes: 8
Results | Other Polls
Display:
Usually I hang around after publishing a diary to respond to any immediate comments/corrections or other points made.  This time I think I'll run for cover!  Hey the sun is shining - and its the first really nice day of the year in Ireland.  I'll come back in a sunny mood this evening to handle any brickbats coming my way...

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 5th, 2008 at 09:01:16 AM EST
Interesting column by Paul Krugman who is bemoaning the fact the crisis may have been abetted but the window for reform and regulation is closing. Krugman may be showing the symptoms of a new virulent form of 'Anglo Disease'. Believing the crisis was the disease instead of the symptoms; not recognizing when you have growth for only the top 5%; it should be called greed and the idea its just the markets which need regulation not a thorough investigation and indictments of the people controlling them.

Is anyone else amazed we have not had one significant investigation and indictments of anyone in what has been the greatest fraud even perpetrated on the US population and elsewhere!!!

Link to Paul Krugman NY Times column titled 'Success Breeds Failure'

http://www.nytimes.com/2008/05/05/opinion/05krugman.html?em&ex=1210219200&en=e026176137f433e d&ei=5087%0A

by An American in London on Tue May 6th, 2008 at 05:50:21 AM EST
[ Parent ]
Have Bush/Cheney been impeached?  Is there anything which cannot be done in the name of Am4erica/Free Markets/Democracy with impunity?  The bankers were just good salesmen, and it was a case of Caveat Emptor.  This IS capitalism, it IS the system.  Why should a few individual practitioners be indicted?  After all, most of the regulations which might have ensnared them have probably been scrapped already.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Tue May 6th, 2008 at 09:53:26 AM EST
[ Parent ]
I would advise you to look up the legal definition of fraud and you would find, everyone who did not act in a transparent manner, knew the products to be defective but still gave them their seal of approval in exchange for outlandish fees they made, knew the bond rating agencies were either lying or incompetent, the home appraisal companies who were appraising the homes at values they knew to be false and the corrupt politicians who changed the laws in order to benefit themselves and their benefactors are potentially guilty of criminal behavior.

An investigation and indictments are needed at every level of this debacle in order to make people pay for their crimes.

by An American in London on Wed May 7th, 2008 at 09:47:51 AM EST
[ Parent ]
sigh. Of course you are right.  But prosecution doesn't even seem to be on the agenda - which is why the whole mess will probably be repeated... Please forgive my cynicism.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Wed May 7th, 2008 at 08:08:03 PM EST
[ Parent ]
I am not an economist, and far be it for me to cross swords with the economic gurus on this site.

I know exactly how you feel.

Coincidentally, I just happened to read an article in the Wall Street Journal that says pretty much the opposite of the article you found (complete with nifty graphic):

Economy May Face Prolonged Pain, History Suggests - WSJ.com

The worst of the financial pain may have passed, but the economic pain could be just starting.

The nation's financial markets have rallied since early March, with stocks up and yields on risky corporate and mortgage-backed bonds falling relative to safe U.S. Treasurys. Optimists got an added boost Friday from a government report that U.S. unemployment fell in April.

But history suggests celebration may be premature. It's common in a crisis for markets to hit bottom long before the economy does. That's because markets are forward-looking and because economic weakness is the way the underlying imbalances that produced a crisis are corrected.

"The financial crisis is usually an expression of broader problems in the economy," says Harvard University economist Kenneth Rogoff, who along with Carmen Reinhart of the University of Maryland, recently wrote a history of financial crises back to the 1300s. "It's a mechanism that exacerbates and deepens the recession, but it's seldom the trigger." <...>

The risk for the U.S. is that weakness goes beyond the correction of housing excesses and begins to feed back into the financial system and then, again, hurts the wider economy.

By contrast, says Nouriel Roubini, an economist who heads RGE Monitor, a financial- and economic-forecasting service, the U.S. financial system has adjusted only to the losses on mortgage loans. He predicts that a wave of defaults on industrial loans, municipal bonds and consumer credit is coming, which will trigger another wave of financial-system distress.

Fed Chairman Ben Bernanke believes such feedback effects are what made the Great Depression great. Mr. Bernanke's awareness of such risks is why he cut rates last week and, despite signaling a pause, is still focused on the risks that the U.S. economy may deteriorate further.



A language is a dialect with an army and navy.
by marco on Mon May 5th, 2008 at 09:14:50 AM EST
I regard Kaletsky as almost in the "Comical Ali" class these days. Whistling in the Dark.

I agree entirely with Roubini

European Tribune - LQD: So who's the chicken little?

He predicts that a wave of defaults on industrial loans, municipal bonds and consumer credit is coming, which will trigger another wave of financial-system distress.

We saw Peak Credit in the US in the middle of last year, I believe, and US consumers simply no longer have the money to spend now that the US property ATM has stopped functioning.

For the highly indebted corporates whose sales will be drying up, low rates of interest from a hapless Fed are of no help, even if they could refinance, since it is the Principal they cannot afford to repay.

I think we are just at the end of the Phoney War. By the autumn the full bombardment will have begun.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon May 5th, 2008 at 09:39:01 AM EST
[ Parent ]
Kaletsky does argue that there will be a sustained slowdown in the US and Europe due to changed attitudes and lending and that future growth will be driven by the emerging markets.  However he takes issue with the "Great Depression" analogies and argues that any actual recession, if it happens, will be short lived and slight.

While I accept that the traditional definition of a recession - two succeeding quarters of negative growth - is tendentious because of the measures used, it i hard to argue in terms of a "Great Depression" in the absence of such stats.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 5th, 2008 at 02:58:33 PM EST
[ Parent ]
Newspapers wouldn't be newspapers if they didn't shriek crisis and its opposite at every opportunity, and often at the same time.  Something about "consistency being a vice of small minds", I believe.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 5th, 2008 at 03:03:58 PM EST
[ Parent ]
I'm going to pull out the highest level, most sophisticated economic analysis I can on the quote article.

OK, here goes ... {cough}

SCENARIO:
... one of the people who did not see the collapse of the housing bubble, and who admits that he didn't think it was a big deal when it started collapsing, looks around at the economic picture, and sees nothing to worry about.

ECONOMIC ANALYSIS:
The writer (quoted writer, not quoting writer!) has demonstrated an inability to see a coming economic crisis in the biggest economic crisis to appear in the past decade, called well in advance by a large number of people who were dismissed at the time as "doom-sayers".

Ergo, his inability to see any further problems is a data point about the author, not a data point about the economy, and there is nothing here on which to base an analysis of the economy.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon May 5th, 2008 at 10:02:29 AM EST
Recession unlikely if US economy gets through next two crucial months - Times Online
From The Times
April 7, 2008
Anatole Kaletsky: Economic view

Recession unlikely if US economy gets through next two crucial months

by Metatone (metatone [a|t] gmail (dot) com) on Mon May 5th, 2008 at 11:08:35 AM EST
[ Parent ]
U6 unemployment (check seasonally adjusted, then click "retrieve data")

JAN.08 9.0%
FEB.08 8.9%
MAR.08 9.1%
APR.08 9.2%

... and the latest quarterly GDP figure was a growth of 0.6% on an annual basis, which is not enough to prevent unemployment from rising further.

For historical comparison, past January U6 figures:

JAN.98 8.4%
JAN.99 7.7%
JAN.00 7.1%
JAN.01 7.3%
JAN.02 9.5%
JAN.03 10.0%
JAN.04 9.9%
JAN.05 9.3%
JAN.06 8.4%
JAN.07 8.3%

The previous trough of employment in terms of U6 unemployment was 10.4%:

SEP.03 10.4%

And the previous peak of employment in terms of U6 unemployment was 8.0%, which is substantially higher than the 90's recovery where the lowest point for U6 unemployment was 6.8% in NOV.00:

SEP.07 8.0%
NOV.06 8.0%
MAR.07 8.0%

... so the US has already lost about half the reduction in unemployment

You can, of course, safely ignore the U3 headline figure, since it excludes part-time unemployment due to being unable to find full-time employment, and has therefore been representing a progressively smaller share of total unemployed labor hours over the past thirty years.

And on the idea that the kind of balance sheet overhang that commercial banks are facing in the US now is compatible with a rapid return to strong growth conditions ... when in fact the US has not had strong growth conditions at any time in the now concluding (peak to peak) business cycle ... is, indeed, just whistling past a graveyard.

Seriously, in the US we already have U6 unemployment at 1.2% above the most recent lowest levels of 8.0% and 1.2% away from the previous high of 10.4% ... and while GDP growth has stalled, it has not yet started its slide into negative territory. And this is an economy that is ready to break out into strong growth if we can just keep the stall from becoming a dive over the next two months?

Hah!

For example, it took Japan roughly a decade to work through these kinds of problems, experiencing repeated recessions interrupted by periods of sluggish growth ...

... with that sluggish growth propped up by cash rates often as low as its technically feasible for cash rates to be and massive deficit spending ...

... for most of the 90's.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Mon May 5th, 2008 at 11:34:48 AM EST
[ Parent ]
BruceMcF:
I'm going to pull out the highest level, most sophisticated economic analysis I can on the quote article.

I.e because he was wrong before he cannot be right now?

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 5th, 2008 at 03:00:09 PM EST
[ Parent ]
but his credibility as a pundit should certainly be questioned.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon May 5th, 2008 at 05:02:56 PM EST
[ Parent ]
Yea, but Kaletsky's credibility isn't really a very important issue, the facts are.  The question is: Is he right or wrong when he argues that we are not headed for a major recession - merely a readjustment in favour of emerging markets.

I think he could actually be right, and that nothing comparable to the Great Depression will occur, but that we are seeing is a major transfer of power from middle/lower income groups to the very rich, and from national political elites to global economic ones.  

This he doesn't say, and I'm not sure this is central to your Anglo disease concept either - as the problem isn't essentially Anglo American (although they may be leading the process), but one of the internationalisation of capital and its movement beyond all political control.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 5th, 2008 at 05:49:56 PM EST
[ Parent ]
He is on the "so far, so good" school of falling from the tenth floor (as stated when arriving at just 1m height).

But yes to your other points. You may have seen the columns by Lawrence Summers and Tony Jackson in today's FT - they touch the same points as you:


...a growing recognition by workers that what is good for the global economy and its business champions was not necessarily good for them, and that there were reasonable grounds for this belief.

The most important reason for doubting that an increasingly successful, integrated global economy will benefit US workers (and those in other industrial countries) is the weakening of the link between the success of a nation's workers and the success of both its trading partners and its companies.

(...)

The situation is very different in an open economy where investments in innovation, brands, a strong corporate culture or even in certain kinds of equipment can be combined with labour from anywhere in the world. Workers no longer have the same stake in productive investment by companies as it becomes easier for corporations to combine their capital with lower priced labour overseas. Companies, in turn, come to have less of a stake in the quality of the workforce and infrastructure in their home country when they can produce anywhere. Moreover businesses can use the threat of relocating as a lever to extract concessions regarding tax policy, regulations and specific subsidies. Inevitably the cost of these concessions is borne by labour.

(That last paragraph is essentially the same refutation of Ricardian comparative advantage that Migeru has made before on ET under conditions of free flow of capital.)


The market peaks of 2000 represented one of the biggest overvaluations of equities in history. The blame is conventionally laid on the technology bubble, and that certainly played its part.

But the more fundamental factor was the collapse of the Soviet Union a decade earlier. That led to the final discrediting of socialism and central planning, the revival of globalisation and the triumph of the US as the unipolar world power.

The effect on corporate profits was galvanising. Vast new markets were opened, and with them a flood of cheap labour. That not only raised margins, but also put downward pressure on inflation. The resulting economic stability made corporate cash flows more stable, and thus more valuable to investors.

And, of course, savings piled up in the hands of the newly liberated developing economies, and of oil producers profiting from those economies' insatiable demand for energy. Hence the collapse in real interest rates, which helped equities both by reducing corporations' finance costs and by making shares look cheap in relation to bonds.

Almost all that is now going or gone, with the sole exception of the surplus savings. Globalisation has reached the point where the developed economies have to share wealth increasingly with newcomers. Labour is no longer cheap, so margins are coming under pressure.

And perhaps above all, inflation is back. On the assumption that this steepens the economic cycle, it reintroduces instability to companies' cash flows. It also pushes bond yields up, so equities suffer by comparison.

All that, please note, would have happened without the credit bubble and the folly of the banks. Throw that in and we have the Great Unwind, as a developed world dropsical with debt is panicked into frugality.



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon May 5th, 2008 at 06:02:34 PM EST
[ Parent ]
No I don't read the FT -  I rely on you for your regular exegeses...  What the seem to be saying is that we are experiencing the first backwash from the great expansion of globalisation post the Soviet Collapse.  This may be so, but there is an even greater backwash to follow.  Globalisation has added literally billions of workers to the global labour market.  There is only one way that the price of labour can go in response to such an oversupply.

Many third world peasants may actually have benefited to some degree by inclusion in the globalisation/urbanisation/mechanisation of their societies. But the overall price to be paid by all is that the long term average price of labour must go down as oversupply increases with `population growth and the mechanisation/automation of production.

But the increased margins such lowered labour prices/productivity benefits = reduced unit labour costs enables has led to a huge increase in the inequality of the wealth distribution.  Within the nation state this can be ameliorated by progressive taxation.  Within the globalised economy it is exacerbated and amplified by tax/regulation competition.

What is the opposite of regulation?  In the neo-con playbook it is freedom - the freedom to play the market without let or hindrance; to allow an ever greater flow of wealth and power from those who have not to those who have.

The Anglo Disease is a minor variation in the degree to which Anglo and European capitalists play this game - or are allowed to by their respective polities.  I'm not sure it alters the bigger global picture all that much.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 5th, 2008 at 06:28:54 PM EST
[ Parent ]
Frank Schnittger:
But the overall price to be paid by all is that the long term average price of labour must go down as oversupply increases with `population growth and the mechanisation/automation of production.

Why must it? That is an "Anglo" assumption.

The idea that when a factory is automated the remaining guy who switches it on and off is almost infinitely productive is balderdash.

The price of Labour could be maintained, or even increased, and the price of/returns to productive Capital - in which the world is awash - could go down to its market clearing level, which I reckon is between 1 and 1.5% pa in real terms.

The anthropocentric assumption of the "productive individual" (Labour Value) is just plain wrong IMHO, but it serves to justify the system, which is why it evolved and persists. IMHO Value lies not only both in productive Capital and in productive Labour, but also in their relationship.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon May 5th, 2008 at 06:56:06 PM EST
[ Parent ]
Why must it?  Because now (after automation) there are 100 people looking for just one job to switch the plant on and off.  The imputed productivity of that worker is irrelevant.  The price he is paid for his labour is determined by the least any of the 100 can/will accept.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 5th, 2008 at 07:17:38 PM EST
[ Parent ]
I should also note that there is no reason to expect the next Depression to be closely analogous to the Great Depression of the 1930's ... given that we are focusing so intently on repeating the mistakes of the late 1800's, a Depression analogous to the Depression of the 1890's would perhaps be as likely, if not more.


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue May 6th, 2008 at 12:42:53 AM EST
[ Parent ]
His report is that he sees no reason to be concerned, backed up by:
  • a number of those who also got it wrong before and with a vested interest in people believing there is no worse news to come, saying that there is not likely to be worse news to come; and
  • two who got it right and scored big, now hedging to protect their gains.

And the unemployment-recession in the US since late last year has already wiped out half of the gain over the course of the "Bush Recovery", before the US has even hit a GDP-recession. A small matter that the used-assets salesmen conveniently ignore.

If he presented an argument regarding what growth drivers are going to keep the US from continuing the current slide toward recession ... that would be one thing. No recession is a certain thing until it has picked up momentum ... I was living in Oz when a recession (generated by a policy mis-step by the RBA) was averted by a dramatic fall in the ozzie dollar and consequent boom in non-traditional exports.

But, there's none of that. And so, when his argument boils down to "trust me, I don't see no dark clouds on the horizon", then, yes, missing the biggest storm in the last decade does kind of undermine the credibility of the tacit, "trust me, I'm considering the critical issues, all the things I'm skipping over can be taken as properly evaluated and accounted for."


I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Tue May 6th, 2008 at 12:33:08 AM EST
[ Parent ]
Kaletsky is an idiot. Everything proceeds from there.

It really doesn't have to be a massive train wreck for this crisis to be quite painful and, in fact, expose some of the more unfortunate aspects of anglo-saxon financial capitalism. Think of this one as a slow train wreck, similar to Japan's lost decade, with the difference that the anglo-saxon econmies don't have Japan's solidarity mechanisms, the the pain will be worse for the bottom tiers.

But I don't think anyone said this would be the crisis that tipped things over...certainly not me. Just a long period of stagnation.

But people are catching on, slowly. And, next time...

And it may in fact be in my lifetime.

by redstar on Mon May 5th, 2008 at 10:33:07 AM EST
As Jerome says, he has successfully predicted nine of the last four recessions....

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 5th, 2008 at 03:01:24 PM EST
[ Parent ]
It's hard to take seriously anyone who still writes about "Britain and Europe" but does not mention the Anglo Disease.

And I also find his attempt to include France amongst the bubbly countries somewhat pathetic (but hey, now the IMF said it was so, who is he to argue with them?).

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon May 5th, 2008 at 01:08:07 PM EST
Jerome a Paris:
It's hard to take seriously anyone who still writes about "Britain and Europe" but does not mention the Anglo Disease.

And I also find his attempt to include France amongst the bubbly countries somewhat pathetic (but hey, now the IMF said it was so, who is he to argue with them?).

The Anglo Disease [[tm]] is your concept and cannot be conceded with accepting that markets need regulation.  In fact it is important for his narrative to conclude that France and Spain etc. are in exactly the same pickle and that Government interference in markets therefore cannot be a solution.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 5th, 2008 at 03:10:55 PM EST
[ Parent ]
I was snarky with the Anglo Disease, but seriously that "Britain and Europe" attitude is beyond ridiculous.

Puts us in our proper place.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon May 5th, 2008 at 03:28:51 PM EST
[ Parent ]
Am I the only one here to feel that we are all missing the point to some extent?  The point is not the severity of the current downturn - whether it amounts to a technical recession or a Depression - or indeed whether it just presages a move in the balance of economic power from the developed to the emerging markets.

The much bigger point, surely, is that the current crisis is exacerbated by and highlights a much sharper shift in economic power from the middle and working classes to the wealthiest amongst us within developed societies.  Whereas previously it appeared that "a rising tide lifts all boats" it has now become abundantly clear that this has only been possible because of asset inflation and huge and unsustainable borrowing based on those inflated assets.

Now that the bubble has burst the huge rise in inequality is there for all to see - in the form of house foreclosures, negative equity, rising unemployment, cutbacks in public services, reducing (fixed contribution rather than fixed benefit) pensions, and inflation as a tax on all, unmatched by wages.  

In the meantime the super rich who have creamed off all the wealth in the good times have moved their assets offshore, and if they were greedy enough to have stayed in too long, have been baled out by the central banks at the taxpayers expense in terms of taxes and inflation.

Globalisation has created a whole new class of the super rich who are not too bother by the performance of any single economy, and not at all bothered by "the common good" in their "home" economy - a laughable concept for them.

You simply move your assets offshore and invest in "emerging markets", take advantage of tax shelters and loosely regulated jurisdictions, and destroy any attempts at global governance by the EU, UN or a plethora of international agencies.

Global corporates are effectively beyond governance because they can move their "Headquarters" to the jurisdiction of least resistance.  We may not be in a depression, or even a technical recession, but there has been a massive transfer of wealth and opportunity from the middle and working classes to a new global super bourgeoisie.  Thus even with positive nominal GNP/GDP growth there are no extra jobs, no extra funds for social services, and living standards stagnate despite headline pay increases above the nominal (and largely spurious) rate of inflation.

My worry is that we are allowing the terms of the debate to edit out these intra -societal wealth transfers, with no mention of the development of supranational elites for whom their is no effective governance at all.  For them their "country" is merely a historical accident or a flag of convenience.  Their patriotism a conceit to fool the gullible.

The Anglo Disease isn't really a disease at all.  It is merely class war under a different name.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 5th, 2008 at 03:31:47 PM EST
I've been meaning to have a look again at Automatic Flat Tax systems that replace all other taxes with a tax on money entering or leaving the banking system - whether private or corporate. That is, when money is transfered it has to pay a toll.

Such a tax could only function in a full electronic transaction system.

There's one version here, but I have read of many others.

Maybe it's crazy - but I'd like to know why it would be crazy.

You can't be me, I'm taken

by Sven Triloqvist on Mon May 5th, 2008 at 03:52:19 PM EST
[ Parent ]
I once proposed a system of VAT on cash - i.e. at the point of dispense - chiefly as a way of dealing with the black economy and the large % of most economies which evade all tax by using untraceable cash transactions.  Thus vat of (say) 10% would be charged on all transactions including buying cash - so that any further transactions with that cash would already have paid the Vat and would thus be legitimately tax free (or more correctly, already vat paid).  Thus Vat would be charged on all e-transactions as normal, but all cash transaction would attract no further liability.

We once tried to do the proper thing and register an au pair as an employee.  It meant we had to take on all the administrative, tax, and insurance burdens of an employer - something which would have created as much work as taking on au Pair would save us.  We ended up paying her cash like everyone else - not because we wanted to evade our responsibilities, but the because the system was designed for larger companies and simply unworkable for small transactions like child minding.

However in such cases the system itself simply ends up blurring the  our ethical and fiscal responsibilities and makes all of us evaders simply by being so unworkable.  A vat on cash system would have solved that problem very simply.  I'm not sure quite how it would work in a situation were the same cash is simply recycled numerous times in numerous transactions without ever returning to the banking/electronic system. Presumably limited companies would have to "bank"/regisetr all receipts so that the money become re-liable to vat for the next transaction.

I can't quite get my head around all that....

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 5th, 2008 at 04:13:00 PM EST
[ Parent ]
We ended up paying her cash like everyone else - not because we wanted to evade our responsibilities, but the because the system was designed for larger companies and simply unworkable for small transactions like child minding.

However in such cases the system itself simply ends up blurring the  our ethical and fiscal responsibilities and makes all of us evaders simply by being so unworkable.

italy in a nutshell

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Mon May 5th, 2008 at 05:27:25 PM EST
[ Parent ]
Sven Triloqvist: I've been meaning to have a look again at Automatic Flat Tax systems that replace all other taxes with a tax on money entering or leaving the banking system - whether private or corporate. That is, when money is transfered it has to pay a toll.

this sounds like it may be similar to a proposal that nicta once described:

The idea is to remove all other taxes, and replace them with a single, small 0.3% tax on each side of every electronic payment. Transfer to and from bank notes/coins would have a higher rate, to discourage black market transactions (note that the author of the idea is an expert on underground economies)

Contrary to what one might think at first, it is inherently progressives. Think about it: a low income household gets paid once a month, .6% of their paycheck is automatically deducted. Then they buy food and shelter; again .6%. They might have a savings account; it costs them .6% to put money into it, and .6% to withdraw. So basically they pay less than 2% taxes.
Now wealthy individuals and corporations will buy and sell property, bonds, and so on.

It doesn't tax work. It taxes money flows. And it's fair: money, and transaction are guaranteed by the state, its laws and its judicial system. It's only fair that those who use this the most pay the most.

but see ChrisCook's response.

A language is a dialect with an army and navy.

by marco on Mon May 5th, 2008 at 06:01:34 PM EST
[ Parent ]
Thanks, marco, you saved me saying it again!

No system that does not tax "wealth" can be equitable, IMHO, and the best way of doing that is taxing privileges, such as exclusive rights to the use of Commons (like land, non-renewable energy, and knowledge), and Limitation of Liability.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon May 5th, 2008 at 06:38:17 PM EST
[ Parent ]
Given that all wealth is ultimately an outcome of some commons - be in land, minerals, energy, manpower, knowledge, goodwill etc. it is logical it should be taxed - if only to ameliorate the tendency of wealth to accumulate in fewer and fewer hands.

However this is a different issue to the transaction taxes discussed here.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 5th, 2008 at 06:43:16 PM EST
[ Parent ]
marco:
The idea is to remove all other taxes, and replace them with a single, small 0.3% tax on each side of every electronic payment.

As stated above in the thread, some people think that a transaction tax can replace all others. Conversely, Henry George's view was that a tax on land rental values could replace all others - which is why the concept was known as the "Single Tax".

My point is that both were right - insofar as each tax is necessary - and also wrong, in that each tax alone is necessary, but not sufficient, for a viable economy.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon May 5th, 2008 at 07:45:52 PM EST
[ Parent ]
is exactly about this:


The Anglo Disease isn't really a disease at all.  It is merely class war under a different name.

Just like "reform" is class war under a different name. Yes, it's the whole point of these series: to show that there is an underlying ideological rationale to all these apparently disconnected events.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon May 5th, 2008 at 05:02:19 PM EST
[ Parent ]
all good points, Frank. here's my addon, pretending to be a quibble...

The Anglo Disease isn't really a disease at all.  It is merely class war under a different name.

PN maybe, but it really IS a disease, a virulent pathology, (complete with epidemic, planet-threatening symptoms, and there's nothing mere about the class war you describe so well.

 buccaneers have toggled and ratcheted the global financial system to their exclusive benefit, and in their greed have signed capitalism-as-we-know-it's death warrant.

they may live a charmed life beyond the law for now, but time is always on the side of justice (often sadly little and late), and the flip side of their levitation above the laws of any one country by keeping the digi-money moving, is the change in regulation their predations are making inevitable.

when the gulf between the 'i'm alright jacks' and the baying dispossessed becomes as absurdly disproportional as it is becoming now - gleefully chronicled by a drooling media, it has always historically been healed by the deposition or decline of the ruling caste through corruption or over-reach, coupled with the grassroots' demands for more social freedom and equality reaching a tipping point when the last straw, the nth insult to injury has occurred.

this has worked in individual states and nations, but has never been taken fully global, since communism failed in its try for classless justice (through totalitarianism).

it seems unlikely that there could be a one-world government for and by the people, where despotism or exceptionalism was abhorred by all, from bitter experience, or the preserved memories of such passed down through the generations, like we do about the holocaust.

but the EU seemed just as unlikely not too long ago...

the UN has been good, especially as symbolic gesture, but it has become neutered and seems like it only gets halfway to effecting real change, mostly making heroic efforts after the facts, and bleating how awful it is, the latest famine du jour. weak, bureau-bloated and tardy...

but how else it can go... imaginative leap that it takes, to see when and how? i earnestly believe we've come too far, and know too much to revert to wild animals...feral scholars maybe, lol!

the powers that be will be the last ones to 'get it', as they have cultivated their own blindness through systematic and inculcated denial, the better to all-too-easily walk a gullible public down the garden paths to ruin.

kicking and screaming at first probably, they will have to be led to a better life by sheer numbers of sane people...

better come quietly....

a little delusional dreaming keeps the spirits up!

while one still can...

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Mon May 5th, 2008 at 05:10:41 PM EST
[ Parent ]
Yea, but the really sad thing about the Irish EU Lisbon Treaty Debate is that it's all about whether the Treaty will help us get more out of the EU or not.  Nothing to do with the ideals of the founders, or the memories of World War which made it both necessary and possible.  What is, gets taken for granted, and the debate revolves around what more we might be able to get by voting yes or no - nothing about adding more to the whole so that all could benefit.  

Market economics is about reducing history to short term self-interest.  We make a commodity out of the past and sell it to the highest bidder.

"It's a mystery to me - the game commences, For the usual fee - plus expenses, Confidential information - it's in my diary..."

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon May 5th, 2008 at 05:38:40 PM EST
[ Parent ]
We live at two universes at once.

In one, a maverick president suffers bad media bias about his actually great economic performance.

In the other universe, people are being broken.

by das monde on Tue May 6th, 2008 at 06:40:30 AM EST


Display:
Go to: [ European Tribune Homepage : Top of page : Top of comments ]