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Let them eat cake

by Jerome a Paris Mon Apr 21st, 2008 at 06:17:35 AM EST


World's rich shrug off credit crunch

The ranks of the world's rich swelled to 8m during 2007 as the wealthy proved immune to the strains across global economies in the latter half of the year.

There was a 4.5 per cent increase last year in so-called "high net worth individuals", those with investable assets of more than $1m excluding primary residence, according to the 2008 wealth report compiled by Citi Private Bank and Knight Frank, published on Monday.

(...)

The report says that the rate of growth of high net worth individuals has outpaced growth in both gross domestic product, and GDP per head, which it believes indicates that the rich are getting richer relative to their respective countries.

"This is not a perfect measure of relative wealth growth across income levels," it says, "but there is an indication here that the plutonomy model retained its strength through 2007 and is in rude health."

The above is self-explanatory: the rich are getting richer, at the expense of everybody else.

Which makes it funny to read this:



Sarkozy urges 'massive' private investment in green technologies

PARIS: President Nicolas Sarkozy of France said Friday that the fight against climate change needed massive new amounts of private investment and globally regulated "green" markets to succeed.

About 90 percent of the money for fighting global warming will come from the private sector over the long term, Sarkozy said at climate talks in Paris with the world's biggest polluters.

Mobilizing a few hundred million euros, or dollars, is not enough, he said, adding that the international community must "massively redirect financial flows toward this new low-carbon economy."

Which brings up the question of how to "redirect financial flows" (which, to a large extent, means convincing your pals the haves and havemores mentioned above to do so)?

Let's see. I have now understood that capital was fully mobile, and went only for the most profitable opportunities - and that this was a Good Thing. So he is saying either that:

  • clean energy is not profitable under market rules, and thus should not be promoted, because it is a misallocation of resources (ie, if the rich don't do it spontaneously, so Green is not a Good Idea) and he's just pretending to do it because it sounds PC or something;
  • it is not a good thing to let capital roam freely, because these flows do not seem to be going to the "right" places for society as a whole, as determined by the very faceless bureaucrats and politicians we're told are no good at allocating investment (ie even though the haves and havemores have shown us what is correct, we're politicians and can indulge in a bit of reality-making of our own);
  • government regulation is needed - and possible - to drive public policies and get international capital to behave as we want it to - but that should not be interpreted as an acknowledgement this can be applied to other topics, and the whole "globalisation is inevitable and cannot be fought" is bunk... because it isn't (otherwise, our rich friends would not be so rich).

When is it a good thing to "redirect financial flows"? ie, when is it a good thing to fuck with money?


The princess's cake gets an added crunch

"I remembered the way out suggested by a great princess when told that the peasants had no bread: `Well, let them eat cake.'" --Jean-Jacques Rousseau, Confessions

When I saw reports of food riots, I was reminded of these immortal words, often attributed to Marie Antoinette, although there is no evidence that she used them. The modern equivalent to "let them eat cake" is: "Core inflation is well contained."

(...)

We can waste a lot of time talking about the mechanics of the oil market or about speculators. Persistent inflation is not caused by oil sheikhs, ethanol producers or retailers, but by monetary authorities. A point Milton Friedman once made, and accepted even by many of his detractors, is that "inflation is always and everywhere a monetary phenomenon". The rise in commodity prices is the consequence of a credit-financed economic expansion that has hit natural supply constraints.

(...)

What about the fact that the US has a negative savings rate? Surely the country would be better off with higher inflation, as this transfers wealth from foreign creditors to US debtors? My guess would be that under such a scenario the US bond market would implode, the current account deficit would become impossible to finance, the dollar would collapse, inflation would rise even more and the Federal Reserve would have to raise interest rates to high single digits or higher. In that scenario, nobody eats cake anywhere.

I expect that the biggest danger to global economic stability will be not the credit crisis, but the way we are overreacting to it. Both in the US, and increasingly in Europe as well, monetary policies are no longer consistent with price stability. Since a pre-revolutionary contempt for the poor is a side effect of this policy, I suspect Rousseau's unnamed princess would have found our early 21st century most congenial.

The reason I'm quoting this bit is that, fundamentally, the way the rich have become richer in recent years is by printing money, loaning it to them for cheap against security on assets, letting them enjoy the price inflation (increasingly untaxed, of course), and preventing the rest from joining the party via higher wages (or letting them join too late in the cycle, ie making them the last suckers in the big ponzi scheme) - and now that the game is over, by deciding that the pain will be borne by everybody via general inflation.

Financial flows have been 'directed' all right.

Display:
http://www.dailykos.com/storyonly/2008/4/20/165537/523/736/499622

but this is in effect a pot-pourri of comments or links posted here first over the week-end.

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

by Jerome a Paris (etg@eurotrib.com) on Sun Apr 20th, 2008 at 05:24:59 PM EST
Just a thought, but if the dollar has fallen, against a basket of other currencies, then wouldn't we see a similar rise in the number of dollar milionaires worldwide?

so if we've only seen a rise of 4.5% in the number of worldwide millionaires then dosn't the fall of the dollar rather camouflage the  concentration of finance in the hand of the few?

Any idiot can face a crisis - it's day to day living that wears you out.

by ceebs (ceebs (at) eurotrib (dot) com) on Sun Apr 20th, 2008 at 05:53:35 PM EST
I was going to say -- as I read the headline and the first couple of grafs -- about what J finally concluded ... it is not a coincidence that the rich got richer during this period of malfeasance in high finance.  they got richer as a result of the redirection of economies worldwide to finance capital and rentier enrichment, currency speculation, enclosure and consolidation of ownership etc.

or as the old joke has it, "I know it's only circumstantial, but I've lost sixpence and you're eating sweeties."

The difference between theory and practise in practise ...

by DeAnander (de_at_daclarke_dot_org) on Sun Apr 20th, 2008 at 07:18:02 PM EST
ie making them the last suckers in the big ponzi scheme

Would that would be all those no-longer-quite-middle-class folks who are facing the coming wave of foreclosures?

The blurker formerly known as ignorant bystander.

by b--- (budr at hughes net) on Sun Apr 20th, 2008 at 07:58:28 PM EST
It should really be "let them eat oil."
by asdf on Sun Apr 20th, 2008 at 08:21:14 PM EST
If anyone needs proof that Milton Friedman was dumber than a box of rocks, the following should do it.
A point Milton Friedman once made, and accepted even by many of his detractors, is that "inflation is always and everywhere a monetary phenomenon".

Let's see, what did he leave out??  Population pressures, declining soil fertility, peak oil, dying fisheries, depleted aquifers, and about one hundred other real-world phenomena.

"Remember the I35W bridge--who needs terrorists when there are Republicans"

by techno (reply@elegant-technology.com) on Mon Apr 21st, 2008 at 12:19:51 AM EST
when only relative prices change (ie - if you have the events you list, they will cause some prices to go up, but if money supply does not increase, then other prices will have to go down as the goods become less demanded, relatively).

Of course, with our current banking system, money creation can be driven itself by economic activity and reactions to endogenous shocks.

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

by Jerome a Paris (etg@eurotrib.com) on Mon Apr 21st, 2008 at 03:28:05 AM EST
[ Parent ]
... get monetary institutions wrong, you automatically get inflation wrong.

And Milton Friedman's description of monetary institutions was based on a fictitious history and rigged econometrics ... and econometrics itself is rigged to allow so many contradictions to observed cause and effect to slide that if you have to rig the econometrics to get "good results", you know that the model is seriously bad.

Of course, the rigging of the econometrics was not Uncle Miltie's fault ... it was all an overzealous graduate student.


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 Apr 21st, 2008 at 04:06:45 PM EST
[ Parent ]
From last Thursday's (17 Apr) The Guardian, US recession? It's hedge fund heaven.

Millions of people are facing foreclosure on their homes, banks are going belly up, tens of thousands are being put out of work, America is on the brink of recession - it's another fantastic year to make money as a hedge fund manager.

The top managers pocketed more personal wealth last year than at probably any time in history. Top of the league table came John Paulson, whose pay packet in 2007 reached $3.7bn (£1.87bn). Close behind him were George Soros and James Simons who made $2.9bn and $2.8bn respectively. The poorest individual listed among the 50 top earning hedge fund managers made $210m.

From last Monday's (14 Apr) The New York Times, Despite Tough Times, Ultrarich Keep Spending.

Who said anything about a recession? Sometime between the government bailout of Bear Stearns and the Bureau of Labor Statistics report that America lost 80,000 jobs in March, Lee Tachman spent roughly $50,000 last month on a four-day jaunt to Miami for himself and three close friends...

He is hardly alone in his eagerness to keep spending. Some businesses that cater to the superrich report that clients -- many of them traders and private equity investors whose work is tied to Wall Street -- are still splurging on multimillion-dollar Manhattan apartments, custom-built yachts, contemporary art and lavish parties...

"When times get tough, the smart spend money," said David Monn, an event planner who is organizing a black-tie party on May 10 for dignitaries and recent purchasers of apartments at the Plaza Hotel; the average price there was $7 million. "Short of our country going on food stamps, I don't think we're doing anything differently." ...

"We're trying to spend on what we feel is important," said Victor Self, an executive with a fitness company who, with his partner, is planning to spend $100,000 on a commitment ceremony on St. Barts and a dessert party for 200 to 300 guests at Jeffrey, a clothing store in the meatpacking district.

by Magnifico on Mon Apr 21st, 2008 at 01:47:09 AM EST
"We're trying to spend on what we feel is important," said Victor Self, an executive with a fitness company

The Onion couldn't do better. Reality, meet fiction. Fiction, meet reality.

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Apr 21st, 2008 at 01:56:41 AM EST
[ Parent ]
It's grotesque. Like I said before, institute 90 % marginal taxes for these people, and then give them some medals and put up some statues to console them.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon Apr 21st, 2008 at 12:45:23 PM EST
[ Parent ]
I see this article/report format all the time("xxx is a problem?  Not for the rich!") and I wonder what exactly is the point.  Is anyone surprised that wealthy people are mostly unaffected by conditions that bedevil much of the population?  Is this news to anyone?  Or do they just exist because people like reading them to get outraged at stuff like that bolded quote?

The way I usually interpret them is:  worthy people are not effected by these problems, so they're not so serious, really.  But that could just be my insecurities talking...

by bselig on Mon Apr 21st, 2008 at 05:28:36 AM EST
[ Parent ]
Reality sometimes leaves satire sputtering in its wake.
by keikekaze on Mon Apr 21st, 2008 at 10:19:13 PM EST
[ Parent ]
Word Spy - plutonomy
plutonomy n. An economy that is driven by or that disproportionately benefits wealthy people, or one where the creation of wealth is the principal goal.

The plutonomy model : that's a good one.

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Apr 21st, 2008 at 02:09:22 AM EST
That's a very good one - in fact it's perfect.
by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon Apr 21st, 2008 at 06:28:44 AM EST
[ Parent ]
I do not know anything about economics. Do these estimates correspond to a plutonomy?:

Bananas = (F+P), F = fruit, P = peel.
Bunching banana = 100(F+P)
n = total number of people

10n/100 ---eat 99F ---- 9.9F per person
40n/100 ---eat 1F  ---- 1/40 = 0.025F per person
50n/100 ---eat 100P --- 10/5 = 2P per person

I wonder to myself:

a) If the 40n/100 not eat 1F, Is there would be less plutonomy?
b)Is not 2P more than 0.025F?
c) Does plutonomy is no better than the economy with charity?

by PerCLupi on Mon Apr 21st, 2008 at 03:30:52 PM EST
[ Parent ]
Wouldn't the effects of the banking meltdown take a while to show up for these people? I'm betting that the highly leveraged ones are in for some exciting times.
by Colman (colman at eurotrib.com) on Mon Apr 21st, 2008 at 05:43:35 AM EST
If I had nothing better to do I'd dig up one of those columns where "flip-flopper" Munchau passionately defended the virtues and relevance of the "core inflation" measure.

I suppose I should be happy he's turned around, but really I'm just bitter at all the wasted time and energy.

by Metatone (metatone [a|t] gmail (dot) com) on Mon Apr 21st, 2008 at 06:02:10 AM EST
"the way the rich have become richer in recent years is by printing money, loaning it to them for cheap against security on assets"
That is a bit monodimensional. Not all the increase in rich people is from people working in finance. It certainly was the easiest way in the last years, but there are many other ways, and especially UK and USA were more finance driven in the last years than other countries, where as well the number of rich people was increasing.

"Core inflation is well contained."
My impression is, that the ECB cares not only for core inflation. If they would really take out energy and food, I think the statements of the ECB were a bit more relaxed than they are.

"clean energy is not profitable under market rules, and thus should not be promoted, because it is a misallocation of resources"
I don't know what Sarko wanted to tell us, but externalisation effects can be interpreted as robbery. So it is market conform to let polluters pay for the right to pollute. The acknowledgment of climate change is nothing else than the detection, that the value of the right to pollute is much higher than what was paid for it in the past. Free Market does not mean no state. Property rights, freedom of contracting, etc. are all state guarantees, environmental destruction is just a bit different from shooting with an automatic gun in an arbitrary amass of people, which probably most agree as a case for state intervention.

Der Amerikaner ist die Orchidee unter den Menschen
Volker Pispers

by Martin (weiser.mensch(at)googlemail.com) on Mon Apr 21st, 2008 at 08:36:01 AM EST
the way the rich have become richer in recent years is by printing money, loaning it to them for cheap against security on assets, letting them enjoy the price inflation (increasingly untaxed, of course), and preventing the rest from joining the party via higher wages (or letting them join too late in the cycle, ie making them the last suckers in the big ponzi scheme) - and now that the game is over, by deciding that the pain will be borne by everybody via general inflation.
And this needs to be shouted from the rooftops, but in fact it's even worse. The rich people have been allowed to print their own money to lend to each other.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes
by Migeru (migeru at eurotrib dot com) on Fri May 2nd, 2008 at 06:23:02 AM EST


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