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Munchau makes yet another step towards the Anglo Disease

by Jerome a Paris Wed May 28th, 2008 at 11:59:41 AM EST

This was from his column on inflation last Monday, but it's worth flagging:

As the central banks remain complacent, inflation will continue to go up. (...) The main difference between the situation in the 1970s and now is today’s absence of wage inflation, which explains why absolute inflation rates are a little more moderate. I guess this is probably because of some combination of deregulated labour markets and globalisation. But the lack of wage-push inflation is not necessarily good news. Falling real wages mean falling disposable income and tighter credit conditions mean less borrowing for consumption. Both factors coincided in Germany in the early part of this decade and I recall well what a depressing period that was. It is now happening elsewhere, and it could be a lot worse, given the precarious state of the global financial system. When purchasing power and credit lines fall, less will be purchased. As private sector consumption is the biggest component of gross domestic product, a long buyers’ strike will be the biggest coolant of world economic growth for several years to come.

Remember that the main failure of neoliberalism is, ultimately, that by denying the middle classes the income need to keep on buying, it kills off growth and makes things worse even for the rich. That was short-circuited in recent times by boosting debt, which allows the middle class to go on consuming without income growth. Now that the debt bubble is unravelling, this "solution" is no longer available, and the lack of actual revenue for the middle classes to spend becomes noticeable again.

What matters here is that stagnant revenues are explicitly noticed as a problem. What remains to be written by the FT's "common wisdom creating editors" (some outside commenters have already done so) is that the debt bubble was created on purpose to hide that inconvenient fact. Soon...

An opus in the Anglo Disease irregular series


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Crazy Horse will probably understand what I'm talking about, but I'm at the Legoland Hotel in Denmark with a client which contacted me via ET. I'll be offline until later tonight.

CH - I was earlier today at Husum meeting with a friend of yours.

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

by Jerome a Paris (etg@eurotrib.com) on Wed May 28th, 2008 at 12:02:15 PM EST
I wanted to believe that "Legoland" was some Danish surname or something, but some googling has just confirmed my fear that the word does in fact mean "made outta Legos."  

And Europe wonders why sometimes it feel like they aren't being taken seriously enough...

"Pretending that you already know the answer when you don't is not actually very helpful." ~Migeru.

by poemless on Wed May 28th, 2008 at 12:13:22 PM EST
[ Parent ]
Now, now, Poemless, Legos are one of the truly great things about having kids, as least for the dads. Further, they serve to develop useful skills in the kids.  One of Denmark's more significant contributions to world culture, IMHO.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed May 28th, 2008 at 12:45:30 PM EST
[ Parent ]
  1.  Ahem.  You don't need kids to enjoy legos.  In fact, I generally do not enjoy kids, but give me a bucket of legos and -poof- I'm a zen master.  I love legos.  Legos are great.

  2.  Legos are toys.  I'm just sayin'...  

I'm not dissing legos, I'm dissing Europe.

"Pretending that you already know the answer when you don't is not actually very helpful." ~Migeru.
by poemless on Wed May 28th, 2008 at 12:53:01 PM EST
[ Parent ]
Pardon the tweak. :-) I just consider play to be one of the highest expressions of our abilities. I thought I could see where you were going... Just wanted to join in on the fun.  I love your comments, and I may just rent a Russian movie from your list.  I loved Solaris, but it, like myself, is too old.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed May 28th, 2008 at 01:15:05 PM EST
[ Parent ]
You haven't lived until you've been to Legoland.
by Metatone (metatone [a|t] gmail (dot) com) on Thu May 29th, 2008 at 09:53:52 AM EST
[ Parent ]
Heh... I wanted to visit it in 1995, but was off the route -- never got even close since, seems I'll never get a life...

*Lunatic*, n.
One whose delusions are out of fashion.
by DoDo on Thu May 29th, 2008 at 12:12:40 PM EST
[ Parent ]
Apparently I've been dead that past 33 yrs.  Who knew?  Why am I still paying taxes?

"Pretending that you already know the answer when you don't is not actually very helpful." ~Migeru.
by poemless on Thu May 29th, 2008 at 12:23:20 PM EST
[ Parent ]
You're doing death and taxes, which are supposed to the only two inevitable things in... life.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri May 30th, 2008 at 07:44:11 AM EST
[ Parent ]
Bah. Been there, done that, stood in damn lines the lion's share of the time. It's just another Disneyland wanna-be. Yes, the model village approaches being a work of art. But give me Tivoli over Legoland any day. Both for the atmosphere and the attractions.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Thu May 29th, 2008 at 02:06:34 PM EST
[ Parent ]
yep.

I will have pictures.

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

by Jerome a Paris (etg@eurotrib.com) on Wed May 28th, 2008 at 01:29:06 PM EST
[ Parent ]
I bet the beds are uncomfortable...

"Pretending that you already know the answer when you don't is not actually very helpful." ~Migeru.
by poemless on Wed May 28th, 2008 at 01:45:10 PM EST
[ Parent ]
they have vivid colors.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Wed May 28th, 2008 at 01:52:06 PM EST
[ Parent ]
You know there's a Legoland theme park in California, don't you?

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 30th, 2008 at 06:29:11 AM EST
[ Parent ]
Does it really make things worse even for the rich?

It is one thing to say that economic growth is not as high as it could be, and therefore the wealth, in absolute terms, that plutocrats have the potential to capture might not be going up to the same extent as it might have had a (relatively) more shared prosperity been enjoyed. Hard to argue with that.

On the other hand, and this is to my mind more important, relative to other classes within a society (and indeed, within this converging global community of which we increasingly are a part), the plutocrats are capturing an ever greater proportion of the overall total wealth creation (albeit the total being less than it could have been), as expressed in a number of ways. Among these ways are a globally rising gini, the casual addition of hundreds of billionaires annually to the ranks of the super rich at the expense of the poor, the peasants and the working classes of their respective home countries, and the increasing concentration of net worth at the top of the wealth strata in most of the liberal world.

That relative wealth, and not absolute wealth or prosperity, is what drives control over the levers of power, and allows the plutocrat class to buy off, in accruing measure, via control of the means of communication, the media, the means of production (via which the ability to decide which classes prosper and which are excluded) and increasingly the educational system, the democratic apparatus in each country over which they increasingly gain economic control. Stiffling shared growth for all is not a bug in the liberal economic system, but a feature.

Similar to the relative concentrations of wealth and power stiflfing growth for all, war tends to also depress, for a number of reasons, economic growth, but somehow, the plutocrats find a way to start them too.  And not only start them, but find a way not to pay their share (via regressive taxes, and yes, even in France this is largely the case) and find the blood and flesh of the lower classes to fight them. And it isn't just the US either...'39-'45 may have cooled the European plutocrats a bit to the use of war to consolidate power over, among other things, natural resources, but it seems this cooling is fading, and countries where aggressive military intervention abroad was seen as anethema to common values begin to pursue wars of aggression without compunction.

This too is not a bug in the system, but a feature.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Wed May 28th, 2008 at 12:24:16 PM EST
The relative wealth aspect is key.  As long as "The Masters of the Universe" are increasing their share of total wealth, they are happy.  They also are much better informed as to pending market moves and are much better placed to avoid the effects of market downturns. They  spend a lot of money convincing small investors that attempting to time the markets is a bad thing, and it usually is, for the small investor. But it is how the big boys make most of their money.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed May 28th, 2008 at 01:03:25 PM EST
[ Parent ]
Wealth is always relative: in a world where the average income is, say, 30K (EUR, USD, GBP, doesn't matter...) and an average house costs, say, 200K, and if your own income is 3 millions (100 times the average), then you're definitely a rich person: you can afford palatial houses (several of them if you fancy to) on very large land plots, luxury cars, first class travel to exclusive resorts (exclusive is the key word here), plenty of personnel serving you etc...

But what if everyone makes 3 millions?
You still make the same money as the example above, but it doesn't get you the same lifestyle, not even close...

So it's not only important for the super-wealthy to keep accruing their income and assets, it is equally important for the rest of us, peasants, not to be able to catch up with them.

Yeah, I know, it's very basic, but it helps explaining some things, such as why middle class stagnation is not necessarily deplored by everyone...

As Dogbert says in a Dilbert comic strip (go ahead, call me a nerd :), "There's one thing about us, rich people: we don't like company."

by Bernard on Sat May 31st, 2008 at 05:07:23 AM EST
[ Parent ]
Total war is the ultimate equalizer. When the state needs all resources it will take all resources, and it sure as hell won't hand them back when the war is over. Just look at the income equality stats of pretty much all nations before and after WW2.

In one way, I hope peak oil will be the "moral equivalent of [total] war" (damn stupid words, as war usually isn't moral at all, but...) and will lead to the kind of increased equality WW2 resulted in.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Fri May 30th, 2008 at 02:12:54 AM EST
[ Parent ]

But when too much money finally stopped chasing too many assets, it started chasing too many goods.

He means "too few assets" and "too few goods" does he not?   Would that we were chasing "too many goods," especially of the black liquid sort, at least for the sake of India and China.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed May 28th, 2008 at 12:52:54 PM EST
Remember that the main failure of neoliberalism is, ultimately, that by denying the middle classes the income need to keep on buying, it kills off growth and makes things worse even for the rich. That was court-circuited in recent times by boosting debt, which allows the middle class to go on consuming without income growth.

This is such an extremely powerful meme, especiayllay when you add that the real income growth of all Americans bar the top 10 % wage earners have risen by just 2,3 (2,6?) %in 1976-2006!

No raises-> houses as ATM's
now we have a house crash-> no one has any money-> demand crisis.

It is all so clear and obvious that I worry we must have missed something fundamental.

I mean, no one* I talk to knows about these things, but when I argue for it everyone agrees at once.

* I asked my father who teaches business how much he thought real wages had risen in the US for the lower 90 % in 1976-2006. He guessed 30 %...

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Wed May 28th, 2008 at 02:23:34 PM EST
He guessed 30 %...

Might not be too far off, ex inflation.  Plus, in the US, we exclude food and energy from the infamous "core" inflation figures.  This made sense when they were going up AND down.  Unless they add back in the inflation in these areas when they remain high for more than a year, say even a 365 day trailing average, they just define away the most devastating parts of what is now happening. But then I believe that is the intent. More LTEs and to congressmen and senators. Grrrr. Sophisticated denial. The problem is that denial typically only fails catastrophically. The bigger problem is that catastrophe looms, and the lesson will come too late for many, including some who saw it coming and were ignored.

It was ever thus.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Wed May 28th, 2008 at 09:46:57 PM EST
[ Parent ]
Don't call it the Anglo Disease, call it Reagonomics.  Then everyone will remember where it came from.
by interguru (jhd -at- interguru -dot- com) on Wed May 28th, 2008 at 06:01:50 PM EST
Brad DeLong is a liberal economist who teaches at Berkeley.

He has this new paper out:
http://www.j-bradford-delong.net/2008_pdf/20080521_capital.pdf

He focuses on capital, savings and the flow of capital around the world. What I find most interesting is that he can analyze the faults with "globalization" fairly well, but only in terms of how to improve growth by doing better in the future.

Apparently there are still no mainstream economists on any side of the spectrum who can contemplate a system not dependent on growth.

To summarize my 2 cents (again):

The rich countries have too much wealth and, especially in the US and UK, it is too unevenly distributed. In general these countries need to learn to do with less and substitute other activities for making "stuff".

The poor countries have too little wealth and it is also too unevenly distributed. They need to have more growth and better democratic institutions. Whether trade is necessary to meet these goals is an open question.

India, China and Brazil are developing into modern equivalents of 19th Century Britain. Industrialization is helping the few and pushing up macro measures of economic activity, but many are being left behind and/or exploited and the environmental damage is unacceptable. It is not clear that there are any political structures that could be devised or proposed that would make this situation better short of revolution or something similar.

However the pie gets sliced in the future the human race is already consuming at an unsustainable rate and population is still increasing. Neither of these fundamental constraints are included in economic models.

Without major change disaster looms.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Wed May 28th, 2008 at 09:20:27 PM EST
Here's someone who "gets" the Anglo Disease:

Tax black hole | Comment is free

the stranglehold now exerted by the City over New Labour which has been persuaded that this financial enclave is central to the economic interests of the UK as a whole. Yet it is nothing of the kind. By bending over backwards to encourage hedge funds and private equity firms through the most egregious tax liberality (most recently the absurdly low 18% tax rate on their income from their "carry" or share of the gains on mammoth deals, less than half the income tax rate payable by top earners), the government has turned the UK, and specifically the City, into a gigantic tax haven for the internationally mobile business elite.

But by sucking talent and capital from other parts of the economy, it has been bought at a very high price. As the credit crunch is exposing, City profits on invisibles cannot compensate for the steady, continuing decline of Britain as a manufacturing nation. The volatility and excesses of the finance sector are outweighed by the million jobs lost in manufacturing in the last decade, the stagnant industrial output, the £7bn-a-month trade deficit, the weakness of manufacturing investment, and a so-called "knowledge economy"R&D restricted to a very few sectors.

The UK has even refused to allow the deduction of tax from interest payments within the EU which would hugely restrict the effectiveness of tax havens because a basic rate tax (probably 20%) would already have been deducted from that income before it reached the tax haven. There can be little doubt that this was stymied to preserve the UK as a tax haven with its City links to its overseas protectorates and crown dependencies. Equally, maintaining fiscal independence from Europe may be a populist move, but in reality it enables the international corporations to play off the EU and other countries against each other in constantly bargaining for the lowest tax rates.

The fact is, the UK can no longer afford either the prohibitive cost of the tax privileges of the City cuckoo-in-the-nest or the collateral manufacturing damage inflicted on Britain as an industrial nation.

(Not New) Labour MP Michael Meacher.

The CIF comment thread is unsurprising.

by afew (afew(a in a circle)eurotrib_dot_com) on Fri May 30th, 2008 at 06:19:17 AM EST
Meacher is one of the "left" of Labour and was going to challenge Brown for the leadership last year but stepped aside to support McDonnell instead.

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 30th, 2008 at 06:24:56 AM EST
[ Parent ]
Yep. But does Meacher read ET?

...sucking talent and capital...

European Tribune - Une explication de la crise financière: l'Anglo Disease

...sucks in talent, resources and money...

I know, it could easily be pure coincidence...

by afew (afew(a in a circle)eurotrib_dot_com) on Fri May 30th, 2008 at 07:39:41 AM EST
[ Parent ]
Don't you also have a diary about the UK as a tax haven?

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 30th, 2008 at 07:45:15 AM EST
[ Parent ]
by afew (afew(a in a circle)eurotrib_dot_com) on Fri May 30th, 2008 at 08:07:36 AM EST
[ Parent ]
That was court-circuited in recent times by boosting debt, which allows the middle class to go on consuming without income growth.
Short-circuited? Circumvented?

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 30th, 2008 at 06:31:19 AM EST
Short. I corrected it.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri May 30th, 2008 at 07:45:44 AM EST
[ Parent ]
It didn't seem to me that "short-circuiting" is something you do to "killing growth and making things worse".

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 30th, 2008 at 07:51:25 AM EST
[ Parent ]
I kept the edit down to changing French to English.
by afew (afew(a in a circle)eurotrib_dot_com) on Fri May 30th, 2008 at 08:04:08 AM EST
[ Parent ]


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