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Getting rid of the Anglo Disease... tax finance, says Martin Wolf

by Jerome a Paris Mon May 25th, 2009 at 06:04:11 AM EST

In an incredibly harsh article published Friday, Martin Wolf, senior editor of the Financial Times, provides both the ultimate indictment of the financial industry, and a simple solution to tame it: tax it:

The UK has a strategic nightmare: it has a strong comparative advantage in the world’s most irresponsible industry.
how should the country manage the cuckoo sitting in its nest?
The fiscal costs of this crisis will be comparable to those of a big war.
UK, as a country, the City of London and the broader financial industry bear much responsibility for this calamity.
Quite simply, the sector imposes massive negative externalities (or costs) on bystanders.
And the solution is simple:
So how should one manage a sector that produces such “bads”? The answer is: in the same way as any polluting activity. One taxes it.
He has further recommendations (a push for global regulation, internalisation of costs by the industry, a stop to listening ot industry lobbying, diversification away from the sector), but the gist is rather clear: finance is a potentially parasitic, easily toxic, activity which needs to be made to pay for the damage it can and does cause to the economy.

As I've noted repeatedly, high marginal taxes would additionnally significantly reduce the attractiveness of multi-million-euro incomes, and might push "talent" into other, more productive ventures than just making money...

But while Martin Wolf has step by step moved towards a position that we can easily endorse, it must be said that his position does not yet seem to be widely shared amongst the Serious People. Will he manage to move common wisdom, or will he be progressively ignored as Krugman, Stiglitz and others are nowadays - or simply labelled partisan?


Display:
FT.com / Columnists / Martin Wolf - Why Britain has to curb finance

Thus, the report's remit was "to examine the competitiveness of financial services globally and to develop a framework on which to base policy and initiatives to keep UK financial services competitive".

If you ask the wrong question, you will get the wrong answer. The right question is, instead, this: what framework is needed to ensure that the operation of the financial sector is compatible with the long-run health of the UK and world economies?

Too much of European policy-making starts from the position that competitiveness of industries and not long-run health of the economy is the most important concern.

The mantra of competitiveness needs to be dropped more broadly than just in the context of UK financial services.

The brainless should not be in banking. — Willem Buitler

by Carrie (migeru at eurotrib dot com) on Mon May 25th, 2009 at 06:16:12 AM EST
Migeru:
The mantra of competitiveness needs to be dropped more broadly than just in the context of UK financial services.

I don't think so.

A shared surplus  cooperative enterprise model operating 'Not for Loss' - in which there are no returns to rentiers - will out-compete the existing 'For Profit' model which does pay returns to rentiers.

So I'm all in favour of competition and turning the rhetoric upon its proponents. BloatedTM and UnproductiveTM rentiers are unnecessary and UncompetitiveTM.

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

by ChrisCook (cojockathotmaildotcom) on Mon May 25th, 2009 at 06:30:36 AM EST
[ Parent ]
ChrisCook:
A shared surplus  cooperative enterprise model operating 'Not for Loss'
is not what our political leadership is thinking about when they say "competitiveness".

The brainless should not be in banking. — Willem Buitler
by Carrie (migeru at eurotrib dot com) on Mon May 25th, 2009 at 06:41:13 AM EST
[ Parent ]
How can the economy even be healthy in the long run without competitive industries?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon May 25th, 2009 at 07:45:05 AM EST
[ Parent ]
In the same way that food is necessary to a healthy body, but focusing purely on food is not likely to lead to longevity, competitive industries may be necessary to a healthy economy but excessive focus on that aspect may lead to pretty nasty side effects.
by Colman (colman at eurotrib.com) on Mon May 25th, 2009 at 07:52:58 AM EST
[ Parent ]
Well, I don't agree at all. The first priority of any nation (after national defence obviously) is to have strong value-creating industries. It doesn't matter how good everything else is if there is no money to finance it (as all those other things will immediatly have to be shut down when there is no money for wages etc), and the only way to get money is to create value in the first place. And value is only created by competitive industries.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon May 25th, 2009 at 07:57:35 AM EST
[ Parent ]
value is only created by competitive industries

Does it really have to be pointed out how arbitrary that statement is? Do we really have to mention all the other value-creating human activities that have nothing to do with competitive industries? Do we really have to ask you to show (without reflexive reference to Soviet this or that) that competition in industry is essential to value creation?

Or is this perhaps leading to a fundamental discussion about the meaning of "value"?

by afew (afew(a in a circle)eurotrib_dot_com) on Mon May 25th, 2009 at 08:02:59 AM EST
[ Parent ]
I think you guys misunderstood me. It might even be a language issue come to think of it. The Swedish word for "competitive" is konkurrenskraftig which literaly means "powerful enough to compete", but generally means "efficient".

That is, efficient schools and hospitals are certainly not excluded from the definition of "competitive industries". Indeed, hospitals will indeed compete (and are already competing) with each other for patients to a much larger degree than they used to because of the new EU rules which give patiens the right to get tax-financed care in other member states.

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

by Starvid on Mon May 25th, 2009 at 08:11:47 AM EST
[ Parent ]
'Buy one operation - get another free!'

Patients don't want choice or competition. Patients want health care.

The attempt to impose competitive values in the UK has been a disaster. It's created a useless class of paper pushers who think they know more about hospital management than front line staff do, and who are more interested in 'competition' than in service.

This has wasted huge sums of money for very little gain in service quality.

The problem with the concept of 'competition' - apart from its reflexive bow to Darwinian eugenics - is that it implies low costs and high profits. It says nothing about quality of service. And in a captive market owned by large corporates, quality of service is the first thing to suffer.

So 'competition' isn't any more efficient at value creation than a completely state managed economy would be. It's better at advertising and PR, and it's better at profit extraction. But it's not inherently better at getting the job done - unless you have very specialised and rare market conditions.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon May 25th, 2009 at 08:28:34 AM EST
[ Parent ]
Sure, but in a health system dominated by stodgy inefficient colossuses with neverending ques, a little competition doesn't hurt at all. Patients certainly want the freedom to choose not to go to bad hospitals.

Can't get that hip replacemnt done in time? Go to Poland and send the bill to the same guys who finance your local hospital.

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

by Starvid on Mon May 25th, 2009 at 08:42:39 AM EST
[ Parent ]
Starvid:
Can't get that hip replacemnt done in time? Go to Poland and send the bill to the same guys who finance your local hospital.
This is one way to make quality health care inaccessible to the poorer segments of society.

"It's not our fault you can't afford to travel abroad for medical treatment".

The brainless should not be in banking. — Willem Buitler

by Carrie (migeru at eurotrib dot com) on Mon May 25th, 2009 at 08:57:18 AM EST
[ Parent ]
Everyone can afford to go to Poland for a weekend. RyanAir, remember?

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon May 25th, 2009 at 09:01:23 AM EST
[ Parent ]
And the reason Ryanair is so cheap is because it is subsidised by the local governments to whose small airports they fly...

Socialize the costs, privatize the profits.

The brainless should not be in banking. — Willem Buitler

by Carrie (migeru at eurotrib dot com) on Mon May 25th, 2009 at 09:04:31 AM EST
[ Parent ]
Even if that were not the case, air travel over short distances is not otrageously expensive. And who says the bill for the air fare can't also be sent to your hospital. If it's still cheaper and with no waiting times, it's in everyones best interest.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon May 25th, 2009 at 09:07:52 AM EST
[ Parent ]
Except that your local, friendly hospital has to repair that hip operation, if an underpaid and overworked Polish doctor (who incidentally does not share your native language, and therefore has a hard time communicating with you unless you speak decent English - which is another class marker, even in countries where English is the native language...) who is given substandard equipment botches the operation and leaves you with a bad hip.

With health care, you get what you pay for, in the sense that it cannot be cheap and (consistently) good. It can be expensive and bad, of course, but that's true for everything...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 25th, 2009 at 01:34:38 PM EST
[ Parent ]
If it's still cheaper and with no waiting times, it's in everyones best interest.
And what about the local Poles who need treatment? Why should their doctor treat foreign Swedish tourists instead of them?

--
$E(X_t|F_s) = X_s,\quad t > s$
by martingale on Mon May 25th, 2009 at 08:57:39 PM EST
[ Parent ]
Well, because the EU protects the free movement of citizens...

The brainless should not be in banking. — Willem Buitler
by Carrie (migeru at eurotrib dot com) on Tue May 26th, 2009 at 04:02:52 AM EST
[ Parent ]
Freedom of movement does not imply a right to elective surgery, though. The argument is that Swedes who don't want to wait their turn in Sweden can jump the queue in Poland. At a minimum, I would suggest that elective (as opposed to emergency) surgery in public clinics should require residency.

--
$E(X_t|F_s) = X_s,\quad t > s$
by martingale on Tue May 26th, 2009 at 04:54:49 AM EST
[ Parent ]
The fact that Swedish tourists get treated will not in any way reduce the treatment local Poles will recieve. They will pay for themselves, remember?

What's happening is that certain industries move to where they have an absolute advantage. To make it perfectly clear: if foreigners start going to Poland it will increase the budgets of the Polish healthcare system to compensate for the increased load, ie more doctors and nurses can be hired. It might even increase the quality of the local care as it is likely that the Poles can demand higher payment from Swedes than from Poles, and it will still be cheaper overall.

In the long run it won't work like that of course, as Polish wages will catch up with those in Sweden, but then in the long run we are all dead.

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

by Starvid on Tue May 26th, 2009 at 07:10:16 AM EST
[ Parent ]
And in the short run it doesn't work like that either, since it takes about 10 years to fully train a medical doctor from scratch, and many years to plan and build new hospitals etc.

In the meantime, a single doctor has only so many hours in the day and if he spends it with one patient, then another patient must wait. Unless of course he doesn't have a full schedule. Are you suggesting that Polish doctors are underworked?

--
$E(X_t|F_s) = X_s,\quad t > s$

by martingale on Tue May 26th, 2009 at 07:50:32 AM EST
[ Parent ]
Starvid:
To make it perfectly clear: if foreigners start going to Poland it will increase the budgets of the Polish healthcare system to compensate for the increased load, ie more doctors and nurses can be hired.

It's just as likely that the Polish healthcare system will keep the extra cash.

Increase in income only translates to increase in investment if rentiers/governments aren't greedy and stupid, there's someone capable and competent to make the strategic decision, and there's a reasonable chance the change will be lasting enough to make it worth doing, and that there's a body of out of work doctors immediately available - or at least hire-able from abroad.

If any of those are marginal, it won't happen.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 26th, 2009 at 07:53:46 AM EST
[ Parent ]
The problem is that, if Poland starts billing Sweden for all that treatment there will be even less money left to fund the Swedish system. So the situation is unstable against a full-scale migration of patients and cash from Sweden to Poland, to the point when unemployed Swedish doctors look for work in Poland where they can treat the Swedish patients.

Meantime, nothing guarantees Poles benefit from this situation.

The brainless should not be in banking. — Willem Buitler

by Carrie (migeru at eurotrib dot com) on Tue May 26th, 2009 at 08:24:21 AM EST
[ Parent ]
I think you are ignoring the dynamic at work. So money is transfered out of the Swedish health care system. What's the big deal? The important thing is that patients get good care, not if it's from a Swedish or Polish or public or private hospital.

If lots of people don't want to go to a certain hospital it will lose money. Problem? Nope. It will lose money for a good reason then, because it's not delivering what patients want, and it'll have to adapt or downsize. This is a good thing as it will force inefficient hospitals to work better. It's kind of what competition is all about: forcing inefficient facilities to become more efficient, or lose their customers.

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

by Starvid on Tue May 26th, 2009 at 08:33:31 AM EST
[ Parent ]
De-funding the weakest schools is something that is being tried in the US and will (preductably) not lead to better education for all but to an exacerbation of inequalities in education. In countries that don't have a commitment to uniformly good public education you have "postcode lotteries" or strong pressures for families to move close to "good" schools, condemning people without the ability to move to substandard education.

Your model would condemn an underclass to substandard health care by abandoning the commitment to uniformly good public health provision.

And by "uniformly good" I don't mean that everything should be the same, but that everyone should have access to a local facility of a certain minimum standard.

You reason as if health care were a consumer good, or a lifestyle service - no different from hairdressers...

The brainless should not be in banking. — Willem Buitler

by Carrie (migeru at eurotrib dot com) on Tue May 26th, 2009 at 08:54:12 AM EST
[ Parent ]
Talking about schools we have that thing happening in Sweden. Because of the utter mismanagement of our public school system during the last few decades, parents have been taking their kids out of public schools and putting them into private (publicly-financed) schools. This in turn is forcing the public schools to become better, or go under. This is a good thing, not a bad. Hospitals and schools aren't the important thing, patients and pupils are, and they're voting with their feet.

Also, observe that it's not just the kids who're put into private schools who become better off, but the ones who stay in the improving public schools are also better off.

Personally I went to public schools. One was horrible, one was semi-good, and one was excellent.

In the best of worlds (ie Finland) we would only have public schools, and they would all be great. But just like when it comes to our healthcare system, such an outcome is impossible for political reasons, and this is the second best alternative.

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

by Starvid on Tue May 26th, 2009 at 09:03:42 AM EST
[ Parent ]
Private schools engage in cream skimming. Whether that gives better results for the public schools is decidedly questionable.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 26th, 2009 at 09:15:38 AM EST
[ Parent ]
Cream skimming?

At least in our system, each pupil has a check, kind of. This check is given to the school of the pupils choice. There's no other mode of financing the schools.

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

by Starvid on Tue May 26th, 2009 at 09:24:57 AM EST
[ Parent ]
Private schools can expel or refuse to admit students who have behavioural issues and/or academically challenged. Public schools can't.

I don't know what you call that, but I call it cream skimming.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 26th, 2009 at 09:31:01 AM EST
[ Parent ]
They can't in Sweden.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue May 26th, 2009 at 09:39:15 AM EST
[ Parent ]
Oh? Then what's the difference between a private and a public school?

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 26th, 2009 at 11:24:40 AM EST
[ Parent ]
Public schools are run and owned by the local authority ("kommun") while private schools ("friskolor") are run and owned by private interests, often the teachers and or the principal.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue May 26th, 2009 at 11:42:57 AM EST
[ Parent ]
and of course that creates another housing bubble with rising prices round the prestigious schools.

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Tue May 26th, 2009 at 09:04:33 AM EST
[ Parent ]
Nope. We abolished the system of kids going to school in the closest school some years ago. Now those who have the highest grades go to their schools of choice. That only applies to lycée (when you're 16-18), but anyway...

And really... the best school I went to was when I was 16-18. It was an inner city school with great reputation, long history, and so on. So was the most horrible school I went to, when I was 7-11 years old. And the semi-good one, when I was 12-15.

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

by Starvid on Tue May 26th, 2009 at 09:08:25 AM EST
[ Parent ]
Hospitals involve very high sunk costs, and tolerably high idling costs. It is not obvious that the gains from competition are sufficient to offset these costs (not that it's entirely obvious that there would be gains from competition at all, for that matter...).

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 26th, 2009 at 09:08:17 AM EST
[ Parent ]
Fair enough, but I don't think we should ship of the emergency rooms and proton cannons to Poland. The stuff you'd do over there would likely be non-emergency stuff which didn't have very high capital costs. I guess.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue May 26th, 2009 at 09:10:10 AM EST
[ Parent ]
That depends rather heavily on how you structure the incentives. Details are hellishly important on issues like this (but then, they always are).

My fear is that the people who make the rules will be from the part of the system that think in terms of international trade, rather than the parts of the system that think in terms of health care quality and social policy. Because, on the record, the international trade types seem to neither know nor care when their ideology imposes some regulation that is not technology- or public/private neutral.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 26th, 2009 at 09:26:49 AM EST
[ Parent ]
I'm amused by how you've become a fan of absolute advantage.

The brainless should not be in banking. — Willem Buitler
by Carrie (migeru at eurotrib dot com) on Tue May 26th, 2009 at 08:25:27 AM EST
[ Parent ]
Well, that was the only reasonable thing to think after that discussion we had (also in a thread about Karahnjukar actually).

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue May 26th, 2009 at 08:33:53 AM EST
[ Parent ]
make sure that your healthcare system is funded, that it works and is seen to work, and that being a doctor, an administrator or a nurse are seen as socially valuable jobs and not as positions for losers, to be squeezed as much as possible.

In other words, stop repeating that government cannot do the job and focus on actually doing the job. It works in many sectors and many countries.

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

by Jerome a Paris (etg@eurotrib.com) on Mon May 25th, 2009 at 09:04:54 AM EST
[ Parent ]
In this connection I had the following exchange with Graham Watson MEP. Responding to his press release Parliament backs rights of patients to healthcare without borders (South West Liberal Democrats)
"I do not understand that people who preach a social Europe do not want to give patients the right to get the treatment they need. Is it social to vote against legislation that benefits the European citizen in a concrete way? This is not about liberalisation of health care services, but about free movement of patients. The directive will not interfere in the way national health care systems are organised. They are playing political games on the backs of European patients."
I asked
How do we prevent member states underfunding their public health system and thus freeloading on their neighbours?
and got
Member states will find that health care becomes a form of tourism - visit of relatives etc. & will have an inventive to improve health care.
Head meet desk, etc...

The brainless should not be in banking. — Willem Buitler
by Carrie (migeru at eurotrib dot com) on Mon May 25th, 2009 at 09:11:37 AM EST
[ Parent ]
Graham Watson:
Member states will find that health care becomes a form of tourism

[head explodes]

Medic!

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon May 25th, 2009 at 09:20:37 AM EST
[ Parent ]
you guys are a crackup, but how about some devil's avocado here?

people have travelled for health, spiritual through pilgrimages, and physical, spa cures.

people even go for a summer beach holiday for their health, on some level.

so travel and health are joined at the hip already, the cheap flights/globalisation thingy has just upped the ante considerably.

it's nothing new, or particularly dramatic, look how may stateside go to mexico for operations, or euros even going as far as thailand for dentistry.

not to denigrate the valid points you're making, just that there is more than one side to the issue, if people want to go somewhere nice and have a holiday, returning with a new nose or choppers (!), it's going to be pretty hard to legislate that into extinction.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue May 26th, 2009 at 02:07:43 AM EST
[ Parent ]
Okay, but that's 'healtchcare' as a lifestyle accessory.

It's missing the point that essential healthcare which isn't available locally might as well not exist.

If I have a heart attack I don't want to be waiting for a doctor to helicopter over from Poland. Likewise if I sprain my foot, I shouldn't have to fly to France for an x-ray.

It doesn't matter how good or 'competitive' these non-UK services are - if they're not immediately available, they'no use to me.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Tue May 26th, 2009 at 04:23:20 AM EST
[ Parent ]
There is a difference between attempting to stamp out health tourism and actively promoting it (and then another yawning gap between promoting it and thinking that it'll solve the underlying problems with our health care systems). Stamping out health tourism is, if not impossible, then at least very probably more trouble than it's worth, but that hardly justifies subsidising it.

And as an aside, if you implement the kind of system where the country you are treated in sends the bill to the country you live in, you run into all kinds of issues. In Poland, for instance, abortion is illegal. In Denmark, it's a fairly routine operation. The Polish authorities might understandably be a tad - ah - miffed, shall we say, that Denmark not only subverts their regulations, it would also be able to bill them for it.

Now, in the particular case of abortion, I happen to think that Poland should sit down, shut up and pretend to be civilised. But suppose that Luxembourg decides that it would be profitable to do chelation therapy for autism, or British lobbyists start pushing the UK as a flag of convenience country for scams like homeopathy?

Should they be able to start a carry trade of people who go there to get free quackery that they'd otherwise have to pay for because their home state doesn't want to sponsor bullshit pseudo-medicine? And then send the bills (along with the bother and cost of dealing with the inevitable complications of using quacks their nostrums instead of real medicine) back to the patients' home countries?

And if you don't allow countries to claim reimbursement for procedures that are not reimbursed in the country they were going to bill, you risk a race to the bottom, where the countries with free, universal health care may end up supporting the cream skimming for-profit health care system of less responsible countries. And if you allow countries to refuse to pay for procedures that they can't be reimbursed for... well, there went the whole mobility of health care thingy...

In short, there's a number of highly non-trivial issues here that need to be fleshed out, and appeals to "competition" strike me as being more an example of the belief in the power of incantation than in the power of evidence.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 26th, 2009 at 05:08:07 AM EST
[ Parent ]
That comment would be worth posting as a diary, to continue this discussion.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Tue May 26th, 2009 at 05:43:13 AM EST
[ Parent ]
Link.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 26th, 2009 at 08:07:25 AM EST
[ Parent ]
What he could have said is that if nation A underfunds its health care and sends all its patients to nation B, nation B will still send the bills back to nation A.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon May 25th, 2009 at 09:22:44 AM EST
[ Parent ]
Member states will find that health care becomes a form of tourism - visit of relatives etc. & will have an inventive to improve health care.

There are several ways to say "fuck you." That is one of them.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 25th, 2009 at 01:41:20 PM EST
[ Parent ]
make sure that your healthcare system [...] works

Haha, yes. That's the problem, isn't it? Political blockages seem to crop up whenever we try to reform our health care system and cut away the bureaucracy. It's not really that the care is bad, it's world class, the problem is the waiting times. The low efficiency.

And because of the impossibility of reform, instead of having a sound tax-financed system with a mix of private and public care institutions we have gotten one which desperately tries to block all private alternatives, but which allows privately financed health insurance with which you can skip the lines in both public hospitals and the handful or private ones they haven't manage to stop.

Marvelous, innit?

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

by Starvid on Mon May 25th, 2009 at 09:14:13 AM EST
[ Parent ]
I think you are confusing the issue of health care in general with your opinion about the Swedish health care system.

There is actually a wide variety of approaches to health care in Europe (and the industrialised world in general.)

Many mix public and private institutions, many have private health insurance systems in parallel to state funding.

While none are as inefficient as the "privatised" american system, all of them, from the market-liberal Germans to completely state controlled Norwegians, are being squeezed by rising costs.

The fact is, people get older as we get more and more treatments and a more efficient health care system.

Hospitals hold the ultimate captive market. The better they work the more customers they have.

Moving the deck chairs around isn't going to unsink the Titanic. If you want a better functioning health care system you have to increase the funding or stop treating people.

by Trond Ove on Mon May 25th, 2009 at 09:34:21 AM EST
[ Parent ]
Trond Ove:

Hospitals hold the ultimate captive market. The better they work the more customers they have.

Moving the deck chairs around isn't going to unsink the Titanic. If you want a better functioning health care system you have to increase the funding or stop treating people.

heh, i would have thought the better the hospital, the faster they'd move the customers out.

till the common wisdom about diet changes, and it's easier -and cheaper- to get a soyburger than a dead cowburger, no amount of deck chair repositioning is ever going to work efficiently, let alone keep pace with boomer aging.

last week they arrested nurses in america for protesting the absence of any single payer plan, health providers are heartily p-o'd that they have insurance companies ruling how they treat patients.

her in yurp it's better, but hospitals remain germ traps, and doctors aren't thrilled with the arrangements, all the while working ridiculous hours guaranteed to cause burnout.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue May 26th, 2009 at 04:00:56 AM EST
[ Parent ]
given by competition.
Society's deepest values should be established without power of concurrence. Value is not about running with the herd, it's about what the herd ought to care about.

Patrice Ayme Patriceayme.com Patriceayme.wordpress.com http://tyranosopher.blogspot.com/
by Patrice Ayme on Mon May 25th, 2009 at 11:35:06 AM EST
[ Parent ]
You are making no sense. You're positing a binary choice between a total focus on "competitive" industries and total economic apocalypse.

The real world may be a little bit more complicated than that.

"strong value-creating industries" can exist in an economy where "competitive" is not the only criteria in use.

And value is only created by competitive industries.

What?
by Colman (colman at eurotrib.com) on Mon May 25th, 2009 at 08:03:57 AM EST
[ Parent ]
You are making no sense. You're positing a binary choice between a total focus on "competitive" industries and total economic apocalypse.

The real world may be a little bit more complicated than that.


Absolutely not. But if you can't make things people want to buy, there isn't going to be any money for generous unemployment benefits or pensions. Simple as that.

"strong value-creating industries" can exist in an economy where "competitive" is not the only criteria in use.

Certainly. I've never claimed the opposite.

And value is only created by competitive industries.

What?


See my response to afew above.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon May 25th, 2009 at 08:22:19 AM EST
[ Parent ]
Starvid:
But if you can't make things people want to buy, there isn't going to be any money for generous unemployment benefits or pensions.

Well, quite. And this is almost exactly what's just happened.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon May 25th, 2009 at 08:30:47 AM EST
[ Parent ]
Exactly. A good example of what happens when no one cares about competitive industries, and instead focus on plunder.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon May 25th, 2009 at 08:38:56 AM EST
[ Parent ]
In some sectors. And in other sectors, "competitive" is A Bad Idea. I don't think anybody argues that it's unimportant whether your steel mills or your shipyards or your ball bearing factories are competitive.

But (retail) banking should not be competitive. It should work. Rail service should not be competitive. It should work. Water and electricity should not be competitive. It should work. And the telecom backbone should not be competitive. It should work.

99 % of the time, giving priority to "it should work" over "it should be competitive" means that it will be more expensive. But it also means that you avoid hitting the last one percent where some critical infrastructure blows up in your face and incurs an overhead comparable to your GDP.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 25th, 2009 at 01:39:16 PM EST
[ Parent ]
Is the health of the electric grid helped by a focus on "competition" among electricity retailers?

The brainless should not be in banking. — Willem Buitler
by Carrie (migeru at eurotrib dot com) on Mon May 25th, 2009 at 08:54:02 AM EST
[ Parent ]
That might certainly be the fact if your current grid is mismanaged and you can't get it in order. Happily, that's not the case around here.

Furthermore, the grid is a far more technical and capital intensive (ie. less people intensive) business than say hospitals, and hence it lends itself better to centralised state control and monopoly.

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

by Starvid on Mon May 25th, 2009 at 09:04:42 AM EST
[ Parent ]
Tell that to the European Commission...

The brainless should not be in banking. — Willem Buitler
by Carrie (migeru at eurotrib dot com) on Mon May 25th, 2009 at 09:06:01 AM EST
[ Parent ]
In the US, hallmark of free enterprise competition, the grid is an absolute mess.  And it's not coherently planned and managed simply because it's become so cannabalized.  30 years of market deregulation has allowed the grid to deteriorate to the point where it now demands huge new investment, and worse, from a security standpoint, is at the breaking point..

Deciding where the most efficient new and rebuilt lines and substations, as well as who's going to pay, hasn't been managed well by the current state of affairs.  for example, excellent wind projects in California have been waiting for over a decade! for transmission issues to be resolved.

The grid, as a social necessity, needs to be managed centrally, with efficiency as the ultimate criteria.  With appropriate oversight regulation of course.

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin

by Crazy Horse on Mon May 25th, 2009 at 09:21:52 AM EST
[ Parent ]
The grid, as a social necessity, needs to be managed centrally, with efficiency as the ultimate criteria.
At least the backbone of the grid, the main lines.

There is a reasonable argument if the finer mesh of the grid is better managed by smaller and more nimble companies, and reasonable people can disagree over that. It's is probably heavily dependent on local characteristics.

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

by Starvid on Mon May 25th, 2009 at 09:26:18 AM EST
[ Parent ]
Yes, i'm only referring to the HV transmission grid over large areas, even nations, including inter-market trading.  the distribution grid is likely best managed by local nimble entities who are not competing.

As J pointed out before, it was the incompetence, not the government or the system, hindered by the quarterly profit motive.

"Life shrinks or expands in proportion to one's courage." - Anaïs Nin

by Crazy Horse on Mon May 25th, 2009 at 09:41:24 AM EST
[ Parent ]
I'm all in favour of competition, provided it includes competition on quality, and not just cost.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Mon May 25th, 2009 at 03:02:00 PM EST
[ Parent ]
to the UK government being incompetent. The Thatcherite ideologues used that situation to make the case that the problem was government, not the incompetence.

By sheer repetition (of the above, plus the trumpeting that the profits reliably extracted by the shareholders of the private companies put in charge of the rent were a good thing), it worked.

But the fact is, the problem is not the government, it's the incompetence. And privatisation is not the only solution to that. Quite the opposite: demonising the government further makes it worse, as fewer people want to work for government in the positions required to do the job.

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

by Jerome a Paris (etg@eurotrib.com) on Mon May 25th, 2009 at 09:08:29 AM EST
[ Parent ]
Can we have competitive industries without looking the big picture? Is it useful to be "competitive" without getting reward? Give the results of production to rentiers? Competitively?
by kjr63 on Mon May 25th, 2009 at 10:38:07 AM EST
[ Parent ]
kjr63:
Is it useful to be "competitive" without getting reward?

i don't see why one can't be competitive with oneself, and one's past performance, but leave it at that. it's healthy to challenge oneself by spurring sometimes, but making one's survival being competitive with others...well how is that better than feral?

we'll never get rid of competition, but we could re-channel it, for example countries vying to become more ecologically responsible, i wouldn't mind seeing the competitive spirit exploited more in that regard!

competitive spirit can ruin relationships, brotherhoods, atmospheres, even creativity. collaboration is a much worthier entrainment, and not just _against some-thing or-one all the time...

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue May 26th, 2009 at 04:17:43 AM EST
[ Parent ]
"..but making one's survival being competitive with others...well how is that better than feral?"

I don't know if i understand your argument correctly, but economy is not about competition of survival. Production creates it's own demand and the more labour is done the higher is the productivity, the less there is impoverishment.
Economy becomes survival game as a result of wealth distribution. When the fruits of labour and productivity provide wealth only to rentiers, the game starts. To those without access to rentier incomes.

by kjr63 on Tue May 26th, 2009 at 07:03:41 AM EST
[ Parent ]
kjr63:
Production creates it's own demand
Wasn't Say's Law discredited by the existence of Depressions?

The brainless should not be in banking. — Willem Buitler
by Carrie (migeru at eurotrib dot com) on Tue May 26th, 2009 at 07:10:48 AM EST
[ Parent ]
Isn't Say's Law just a fancy way of stating that the market must always clear? The neolib version seems to me to arise from neglecting to consider that inventory buildups are also a way of making markets clear... and that particular buffer causes a particular kind of delayed feedback known as "inventory recessions."

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 26th, 2009 at 08:17:41 AM EST
[ Parent ]
"Wasn't Say's Law discredited by the existence of Depressions?"

That was the reason? But did how they explain depressions? No one seems to notice when it's coming?
I believe Say's Law does not work, because production creates economic rent. Land price, finance bubbles, monopolies etc. Not only labour and capital costs. If it would be so, i believe Say's Law could be quite accurate?

by kjr63 on Tue May 26th, 2009 at 12:04:15 PM EST
[ Parent ]
kjr63:
I don't know if i understand your argument correctly, but economy is not about competition of survival.

when resources were abundant and the earth was underpopulated, competition evolved for quality. now as we enter a dearth of what we took for granted, economic competition is a wasteful luxury we can ill afford.

that was the point i was clumsily trying to make.

thanks for your comment, i believe we are in agreement.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue May 26th, 2009 at 05:47:28 PM EST
[ Parent ]
The cuckoo sitting in its nest is a fine metaphor. It sums up so much of what we've said here about the parasitic domination of the economy by the financial sector.

There's another remarkable statement of the Anglo Disease meme here:

True, in 2007, the last year before the crisis, the UK ran a trade surplus of £37bn in financial services, partially offsetting an £89bn deficit in goods. But smaller net earnings from financial services would have generated a lower real exchange rate and more earnings elsewhere. Given the costs imposed by the financial sector, a more diversified economy would have been healthier.

(Reminder: the Anglo Disease idea echoes what was called Dutch Disease, when the predominance of the high-export natural gas industry in the Netherlands, among other damaging effects, drove up the exchange rate, penalising the exports of other sectors of the economy).

by afew (afew(a in a circle)eurotrib_dot_com) on Mon May 25th, 2009 at 06:24:14 AM EST
afew:
what was called Dutch Disease, when the predominance of the high-export natural gas industry in the Netherlands, among other damaging effects, drove up the exchange rate, penalising the exports of other sectors of the economy

I don't see any connection between the Dutch Disease and the Anglo Disease, actually, other than the description as a Disease.

IMHO the Anglo Disease is directly caused by the toxic combination of compounding debt and private property, particularly in land.

The Dutch disease on the other hand was a macro-economic policy mistake, on a grand scale, I think, in that they repatriated most of their surplus and did not adequately neutralise it by investing it in productive domestic assets.

The Norwegians have made sure that much of the profits of their carbon windfall have in large part been invested overseas. While this has avoided the problems experienced by the Dutch, it has not been adequately invested in productive assets. This may now be changing in response to the Credit Crunch etc.

The problem for the Norwegians - as for the other holders of petro wealth - has been the overseas investment choices they have made.  

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

by ChrisCook (cojockathotmaildotcom) on Mon May 25th, 2009 at 06:45:15 AM EST
[ Parent ]
ChrisCook:

IMHO the Anglo Disease is directly caused by the toxic combination of compounding debt and private property, particularly in land.

The Dutch disease on the other hand was a macro-economic policy mistake, on a grand scale, I think, in that they repatriated most of their surplus and did not adequately neutralise it by investing it in productive domestic assets.

The UK also committed a macroeconomic policy mistake by allowing the financial sector to grow to what, 25%? of GDP with all serious people saying the City was the engine of the British economy, and capturing all the commission income from the capital flows going through The City and failing to invest it in productive domestic assets.

Instead, a lot of the money went to fuelling the property bubble.

The brainless should not be in banking. — Willem Buitler

by Carrie (migeru at eurotrib dot com) on Mon May 25th, 2009 at 06:59:09 AM EST
[ Parent ]
that finance only makes 8% of GDP, but I think it made up a disproportionate portion of GDP growth in the UK in recent years - and most of that went to a rather small number of people.

Things may not have looked too bad because government went on a hiring and spending spree on education and healthcare (thus ensuring that jobs were created - in the publc sector, not in the private sector, as the claim of "dynamism" suggests), from its skim of the financial plunder - ensuring that the government is now broke as a large source of income dries up, just at the moment it would be needed to do contra-cyclical policies.

In other words, government hid the plunder by its spending, and is now as naked as the population.

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

by Jerome a Paris (etg@eurotrib.com) on Mon May 25th, 2009 at 07:05:28 AM EST
[ Parent ]
Pretty much the Irish experience as well: government used property bubble windfall taxes to sustain a low-tax highish-benefit economy and now discovers that it's not sustainable and is indulging in even more pro-cyclical policies.
by Colman (colman at eurotrib.com) on Mon May 25th, 2009 at 07:08:27 AM EST
[ Parent ]
Some figures (need refreshing, but they give a notion of the just-before-crisis state) that we quoted in the Anglo Disease piece sent to the WSJ:

In the UK, where the sector's share of GDP rose to 9.4% in 2006, from 5.5% in 2001, City-dominated London received 50% of total foreign investment. Per capita Gross Valued Added rose by between 8% and 9% over the last decade in London while, in all other regions of the UK, it stagnated or fell.
by afew (afew(a in a circle)eurotrib_dot_com) on Mon May 25th, 2009 at 08:08:51 AM EST
[ Parent ]

I don't see any connection between the Dutch Disease and the Anglo Disease, actually, other than the description as a Disease.

The connection is that you have a sector which has much higher profitability than the rest, and thus attracts further investment, talent and political influence to itself, and causes other industries to shrink, relatively and absolutely.

This may not appear to be a problem for as long as it lasts, but that profitability cannot last - either it's the windfall from a finite resource, or it's, as in the case of finance, the result of plunder/parasitism and it will inevitably crash under its own weight.

Then you have the disease: the "profitable sector" is gone, and the rest of the economy has been irreversibly damaged in the meantime.

The only solution is to capture the profits, to avoid excessive investment in the sector, and sustain the rest of the economy in the meantime.

In other words: tax it.

But it IS fundamentally the same phenomenon, except that in this case the profitability was created by regulatory arbitrage, and not by resource discovery.


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

by Jerome a Paris (etg@eurotrib.com) on Mon May 25th, 2009 at 07:02:02 AM EST
[ Parent ]
Almost. I think it's easy to make the mistake of assuming that the City has been run independently of government.

In fact what happened is that up to the 1970s, industry was subsidised by government spending. So we had mining, car making, ship making, steel making and the rest. These were effectively job creation schemes, with a light spicing of industrial strategy. But they were never really intended to be profitable or 'competitive.'

The Thatcher revolution was partly a political move to put the working class in its place. So killing those industries was done as much for political reasons as for financial ones.

But more than that - the subsidies and tax breaks which maintained those industries were shifted to the City. So now it was the City which took the place of the industrial sector. While the City was nominally more profitable, and better at attracting foreign money, in real terms deregulation has been equivalent to a generous gift of cash. And before manufacturing died it was given exactly the same kinds of bail outs that we're seeing today.

So there was never any chance the City would be taxed at a reasonable rate. Not only was this ideologically unthinkable, it would also have defeated the object of the exercise - which was state engineering of an 'industrial' replacement for UK manufacturing.

The government is screwed now because there's no obvious replacement sector waiting in the wings.

In fact alternatives exist - green engineering, self sufficiency and resilience, distributed systems of various kinds, and the creative industries. But no one is pushing them seriously in Westminster yet as a replacement, and it's probably going to take half a generation of chaos before government wakes up to the possibilities.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon May 25th, 2009 at 08:42:49 AM EST
[ Parent ]
Almost. I think it's easy to make the mistake of assuming that the City has been run independently of government.

In fact what happened is that up to the 1970s, industry was subsidised by government spending. So we had mining, car making, ship making, steel making and the rest. These were effectively job creation schemes, with a light spicing of industrial strategy. But they were never really intended to be profitable or 'competitive.'

Ahem. Royal Dutch Shell hardly counts as an "unsubsidised" company either, by any account.

Granted, its subsidies have been less along the lines of suitcases full of cash from the government and more along the lines of gun shipments to various dictators around the world. But hey, that's a kind of subsidy too.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 25th, 2009 at 01:55:09 PM EST
[ Parent ]
IMHO the Anglo Disease is directly caused by the toxic combination of compounding debt and private property, particularly in land

Why is that so specifically Anglo? As far as I'm aware, compounding debt and private land ownership are common to all "developed" economies.

Did it have nothing to do with the Dutch Disease, for instance? How did that qualify for the description a macro-economic policy mistake, on a grand scale, while the financial domination of the US/UK economies would not, if I read you correctly?

On domestic investment (Netherlands/Norway), I quite agree. Isn't there a case, though, for saying that the UK has exported natgas and financial services without adequate investment in a diversified domestic economy?

by afew (afew(a in a circle)eurotrib_dot_com) on Mon May 25th, 2009 at 07:11:30 AM EST
[ Parent ]
afew:
As far as I'm aware, compounding debt and private land ownership are common to all "developed" economies.

Big differences. The Anglo Disease countries are - by definition of "Anglo Disease", I submit - more focused than non-Anglo Disease countries on the privatisation of everything that doesn't move, and much that does. Land is only part, but the biggest part, of the problem, in that it is through claims over land that over two thirds of Anglo money/credit is backed.

The proportion of public ownership of land/property and a tradition of land/property rentals is much greater in the non-Anglo countries, particularly (say) Germany.

In that money is involved in both Diseases then yes, there is a loose connection.

The Dutch disease is about the misinvestment of the fruits of (wasting) productive assets. The Anglo Disease is about the creation of claims over productive assets and the inequitable allocation of these claims.

afew:

Isn't there a case, though, for saying that the UK has exported natgas and financial services without adequate investment in a diversified domestic economy?

Yes, the UK has pissed away a carbon windfall on unemployment benefit.

The UK has also failed to adequately tax the windfall from the intellectual and human capital represented by the City, and to adequately invest the tax they did raise.

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

by ChrisCook (cojockathotmaildotcom) on Mon May 25th, 2009 at 07:50:37 AM EST
[ Parent ]
afew
Anglo Disease idea echoes what was called Dutch Disease, when the predominance of the high-export natural gas industry in the Netherlands, among other damaging effects, drove up the exchange rate, penalising the exports of other sectors of the economy

The Anglo Disease as experienced in the USA seems qualitatively different due to the dollar's role as a reserve currency.  While the disease is likely to lead to an eventual change in the de facto nature of reserve currencies, the dollar's current and past status has enabled and continues to enable the USA to export many of the consequences of its own bad behavior.  It, in effect, is an even bigger cuckoo sitting in the nest not just of the US economy and society, but of that of the whole world.  I do not see how Wolf's goal for the U.K to "make global regulation work....(and to) discourage regulatory arbitrage" without close coordination with the US Government, and that seems problematic at best just now.

I am struck by how the thesis advanced by NBBooks in his current diary, Debunking the Myth of the Financial Markets, should fit into this discussion.  
As he notes:

Wall Street simply is not doing what most people think it's doing. Nor what most people think it should be doing. Wall Street is not even doing what it says it is doing. Wall Street is pushing a big myth that its services are essential to the functioning of the rest of the economy. But the truth as, as this graph shows, Wall Street does not -- and has not for a very long time -- serve the function of allocating credit in the economy.

The arguments and graphs from Ozgur Orhangazi's Financialization and the US Economy seem cogent.  I realize that selling this idea to Serious PeopleTM is an even bigger challenge than selling the recommendations Wolf has made, but the concepts are mutually reinforcing and the solutions would seem to be similar.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon May 25th, 2009 at 12:36:57 PM EST
[ Parent ]
The Anglo Disease as experienced in the USA seems qualitatively different due to the dollar's role as a reserve currency.

IANAE, but my take on that is that the US used the dollar's status as reserve currency to inflate its financial sector, where the UK used a much more aggressive policy of being a tax shelter flag of convenience country.

I'll leave it to the economists to hash out whether that's a qualitative difference.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 25th, 2009 at 02:01:21 PM EST
[ Parent ]
But the problem faced by the U.K. is more difficult than it would be were the pound an international reserve currency of status equivalent to that of the euro.  Iceland, Ireland and the U.K are a progression of steps in economic and currency weight.  The step from that progression to one containing the EMU and the USA are much greater.

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon May 25th, 2009 at 02:28:33 PM EST
[ Parent ]
That's certainly true. OTOH, as Bruce points out, the US is uniquely dependent on energy imports from countries over which it has limited political influence.

Iceland, OTOH, has abundant energy resources. And the UK has a number of markers it could surrender in the European political game in return for help with its energy issues. Ireland... well, they're not quite as far in the hole as the UK, at least to judge by what I read on ET. Being a much smaller economy located much closer to a functioning economic zone is both a blessing and a curse that way...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 25th, 2009 at 03:04:30 PM EST
[ Parent ]
True enough about Iceland with geo-thermal energy, but it is hardly self sufficient and their vehicles do not yet run on electricity, do they?  But everyone has their own set of circumstances.  

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon May 25th, 2009 at 07:50:18 PM EST
[ Parent ]
I guess I was trying to say "yes, they're qualitatively different... for suitable values of 'qualitatively.'"

The fundamental, underlying logic is the same. The political and economic fallout, and the specific way it was implemented are not.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 25th, 2009 at 08:20:46 PM EST
[ Parent ]
I think that they are self sufficient. It's just that Iceland exports much of its electricity in the form of aluminium.

"The future is already here -- it's just not very evenly distributed" William Gibson
by ChrisCook (cojockathotmaildotcom) on Mon May 25th, 2009 at 08:31:07 PM EST
[ Parent ]
From what I saw, Alcoa had made an arrangement that left the state liable for most of the cost of the Alcoa plant and it was planning on ridding itself of any obligation to pay Iceland.  I may be mis-remembering the details.  Do you know how that has worked out?

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon May 25th, 2009 at 09:31:10 PM EST
[ Parent ]
There is a film - "Dreamland" - about the whole thing



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

by ChrisCook (cojockathotmaildotcom) on Tue May 26th, 2009 at 04:27:06 AM EST
[ Parent ]
Without having seen more than thait trailer, it does seem like the usual PC anti-industrial leftist clap-trap.

With the economy going to hell, I'd say the people of Iceland will be pretty happy they'll still have the aluminum industry left, especially as I've heard the guestworkers have been shipping out because of the currency collapse: their wages aren't that high anymore in real terms.

So the Karahnjukar project should be a good thing now, if Alcoa doesn't fuck them over somehow.

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

by Starvid on Tue May 26th, 2009 at 07:18:26 AM EST
[ Parent ]
Given Alcoa's record, that's a pretty big "if," though...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 26th, 2009 at 08:10:27 AM EST
[ Parent ]
Is there anything in particular they're doing, or what? I thought both the smelter and the dam were on schedule and will work just as planned.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue May 26th, 2009 at 08:18:54 AM EST
[ Parent ]
I'm worried about the sticky strings attached, more than whether the industrial machinery will operate or not. Alcoa does not have a particularly convincing record when it comes to honest business practise, human rights, paying taxes and other such niceties.

The fact that they were one of the central players in Pinochet's coup doesn't precisely do wonders for my confidence in their willingness to do well by Iceland either. AFAIK, they were never seriously punished for that story.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Tue May 26th, 2009 at 08:56:22 AM EST
[ Parent ]
Fair enough.

We'll just have to wait and see.

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

by Starvid on Tue May 26th, 2009 at 09:04:42 AM EST
[ Parent ]
1) I've been waiting for this. When all this started last summer, I wondered when we'd hear:
First, the UK needs to make global regulation work. It should discourage regulatory arbitrage even if it expects to gain in the short run.

A call for a new Bretton Woods type conference. I don't know, frankly, if the US would participate, and if we do, if we would do anything more than try to limit any such conference's work. Shades of Kyoto.

:and:

2) Ok, who has an answer to this: greater regulation on finance and a firmer grip on risk management will mean companies will find it harder to get access to the funds they need to operate. Fine, as far as that goes, it's a premise I'm willing to consider, but to what extent are companies already facing this condition? Are we going to lose more jobs? Are those jobs already the ones currently at the most risk anyways? Or already gone? Have the weak been culled by now?

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon May 25th, 2009 at 07:51:17 AM EST
I don't think 2 is true. I'm not even sure that the money that was sploshing around the system prevously was available for companies who wanted to do real work. Pure financial stuff was much sexier.

Anyway, the level of lending in a more sensible environment should be much higher than the current level, since the problem at the moment is that the banks don't have any money to lend.

by Colman (colman at eurotrib.com) on Mon May 25th, 2009 at 07:58:18 AM EST
[ Parent ]
I'm not even sure that the money that was sploshing around the system prevously was available for companies who wanted to do real work. Pure financial stuff was much sexier.

Well, it did slosh around the housing market in the US. A few new home builders went from local to regional to national and if they didn't become massive centers of the economy (like finance was), certainly became the bellweather of US economic "health". It was one of the reasons I ran away from the equities market - for quarter after quarter, only housing was doing well.

But your point is well taken that the economic picture we see today is probably more accurate, except for those trying to meet contractual obligations made under seemingly more propitious conditions. I wonder to what extent that has worked its way through as well. I've heard both good projections and bad.

::

banks don't have any money to lend

After all the billions of TARP dollars thrown at banks just so they would lend? I have trouble wrapping my mind around that. I know there was criticism over banks using TARP funds for M&A - definitely not what it was meant for - and all that money, years of debt burden...for nothing?

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon May 25th, 2009 at 08:14:07 AM EST
[ Parent ]
papicek:

::

banks don't have any money to lend

After all the billions of TARP dollars thrown at banks just so they would lend? I have trouble wrapping my mind around that. I know there was criticism over banks using TARP funds for M&A - definitely not what it was meant for - and all that money, years of debt burden...for nothing?

Once again there is a misapprehension as to the nature of banking. Banks do not take in existing money and lend it. If they did, there could not be any new money.

Credit Institutions aka Banks simultaneously create new money as interest-bearing credit and matching deposits.

Sure, Banks are made liquid through TARP and may have better quality assets (bailing out the rich), but they are conserving capital jealously against further defaults, and they have a shortage of creditworthy people and projects to whom to lend.

The TARP money is a credit transfusion replacing the credit haemorrhaging out of the economy as it collapses. The only ways of getting it into the economy is to spend it or lend it.

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

by ChrisCook (cojockathotmaildotcom) on Mon May 25th, 2009 at 08:23:30 AM EST
[ Parent ]
papicek:

banks don't have any money to lend

After all the billions of TARP dollars thrown at banks just so they would lend?

If you want lending to happen you don't throw money at insolvent institutions hoping they will start lending. You lend.

Or you have the banking regulators intervene the institutions and put them back on their feet so they can start lending again, at a lower cost than TARP.

The brainless should not be in banking. — Willem Buitler

by Carrie (migeru at eurotrib dot com) on Mon May 25th, 2009 at 09:00:03 AM EST
[ Parent ]
and actually do lend.

The problem is that the shadow banking system, which had taken such a big role in financing the economy (via securitisation, and commercial paper, asset backed or otherwise, mainly), is now gone, and banks cannot step up to replace it.

So banks actually lend a little bit more than before, but companies get much less financing than before, because of the disappearance of the unregulated lenders, and the inability of the banks to step in on the scale required.

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

by Jerome a Paris (etg@eurotrib.com) on Mon May 25th, 2009 at 08:36:22 AM EST
[ Parent ]
No, no they don't. Not generally. Not here.
by Colman (colman at eurotrib.com) on Mon May 25th, 2009 at 08:37:57 AM EST
[ Parent ]
but statistics for France, the UK and the US do show what I wrote above - even if the perception is that banks are not lending to replace what was funded in other ways previously

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Mon May 25th, 2009 at 08:50:03 AM EST
[ Parent ]
So my concern in point number 2 above is already (largely) behind us? There's no further downside to enhanced regulation?

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire
by papicek (papi_cek_at_hotmail_dot_com) on Mon May 25th, 2009 at 09:30:16 AM EST
[ Parent ]
Cerberus is gone? Trump is gone? I wish! Unfortunately that rotten giant shoe has not dropped yet...

Patrice Ayme Patriceayme.com Patriceayme.wordpress.com http://tyranosopher.blogspot.com/
by Patrice Ayme on Mon May 25th, 2009 at 11:29:05 AM EST
[ Parent ]
I think even more blood must float under the bridges until we have such a clean slate that everyone can compromise enough to make Bretton Woods II possible.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Mon May 25th, 2009 at 07:58:54 AM EST
[ Parent ]
It's the first call for something like the BWC, so I can't but agree.

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire
by papicek (papi_cek_at_hotmail_dot_com) on Mon May 25th, 2009 at 08:16:06 AM EST
[ Parent ]
papicek:
A call for a new Bretton Woods type conference. I don't know, frankly, if the US would participate, and if we do, if we would do anything more than try to limit any such conference's work. Shades of Kyoto.

There will be such a conference before too long, I think, and it will look rather like a Creditors' Meeting for the US, in particular.

I don't think that there is anything that the US will really be able to do to limit its work either any more than any other debtor can direct their creditors.

papicek:

Ok, who has an answer to this: greater regulation on finance and a firmer grip on risk management will mean companies will find it harder to get access to the funds they need to operate. Fine, as far as that goes, it's a premise I'm willing to consider, but to what extent are companies already facing this condition? Are we going to lose more jobs? Are those jobs already the ones currently at the most risk anyways? Or already gone? Have the weak been culled by now?

Governments should be able to ensure enough credit to allow strong mature companies to operate, but there is a continuing cull gathering pace, I think, of those mature companies which have been weakened by private equity debt loads.

The biggest difficulty will be for start-ups and developing enterprises, since these are not 'bankable'.


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

by ChrisCook (cojockathotmaildotcom) on Mon May 25th, 2009 at 08:14:15 AM EST
[ Parent ]
I don't think that there is anything that the US will really be able to do to limit its work either any more than any other debtor can direct their creditors.

Possibly. Don't underestimate the US's ability to manage outcomes internationally. At times we're very good, even if very underhanded at it. Depends on how aggressively China can leverage her status as the world's largest consumer now that the US is not.

::

The biggest difficulty will be for start-ups and developing enterprises, since these are not 'bankable'.

Most of the smaller firms are more manageable risks, as they require less capital. Nobody is trying to enter markets, even now, where there are strong barriers to entry. So we're talking local franchises. I'd be more worried about a scenario like the big three automakers soaking up all the available capital retooling their lines to maintain competitiveness with Toyota and Honda, while similarly big firms trying to expand and/or diversify as well. (Global Marine planning on refurbishing its fleet for deeper drilling would be another great credit sponge, for instance.)

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon May 25th, 2009 at 08:28:50 AM EST
[ Parent ]

China can leverage her status as the world's largest consumer now that the US is not.

China is a midget compared to the US and Europe. And need I remind you that it was Europe, not the US, that was the locomotive of the world economy over the years leading to 2007?

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

by Jerome a Paris (etg@eurotrib.com) on Mon May 25th, 2009 at 08:41:14 AM EST
[ Parent ]
Wasn't it you who put up a diary in which you showed a graph of China's overwhelming hunger for concrete?

Your graph in that earlier diary was on growth. What's the situation in absolute dollars - or any currency you choose?

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon May 25th, 2009 at 08:54:29 AM EST
[ Parent ]
Chine does dominate demand for some specific sub-sectors (concrete, cranes, iron ore) linked to their heavy focus on heavy-industry buildup and infrastructure construction.

But otherwise, their share of world demand is still pretty low.

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

by Jerome a Paris (etg@eurotrib.com) on Mon May 25th, 2009 at 09:02:38 AM EST
[ Parent ]
As my first ET chart will illustrate:

GDP PPP in USD 2008 est.

China is not even close to being the world's leading consumer, but hardly a midget, and with lots more upside than either the EU or the US.

Source: CIA World Factbook.

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon May 25th, 2009 at 09:19:59 PM EST
[ Parent ]
papicek:
greater regulation on finance and a firmer grip on risk management will mean companies will find it harder to get access to the funds they need to operate.

Not quite. You'd expect the inevitable overshoot into lending paranoia, which is more or less where we are now,

But eventually companies should find it easier to get access to funds. Funds could be made available with less draconian expectations of instant returns. So jobs would be created and wealth could - potentially - be distributed more equitably.

A lot of healthy industries have been destroyed by insane expectations of ever-expanding quarterly growth. One of the easiest ways to create the illusion of growth is to fire people. Relaxing that criterion would create and sustain jobs and allow the real economy to rebound.

Most of the risk has been in property lending. Reducing prices by 50% or 75% would be brutal in the short term, but would have the useful side effect of making housing affordable again. It would also free up disposable income which could be spent on other things, beyond trying to service a mortgage.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon May 25th, 2009 at 08:20:54 AM EST
[ Parent ]
A lot of healthy industries have been destroyed by insane expectations of ever-expanding quarterly growth.

You don't have to tell me. I work at a publically traded retailer, who is currently stressing and restressing that each of us squeeze the last penny out of the customer that we can.

I've pushed back on this as much as I can, but I'm already starting to hear grumbles from my managers over my performance. I haven't thrown the NYT in WWI example at them yet, and I'm keeping my mouth shut (at work) about the low regard in which I hold shareholders. (To me, they're no more than gamblers and deserve as much consideration. I've heard the "boss who signs your check" already, but as it wasn't directed at me, I haven't replied, "it's the customer who funds the payroll account and the customer is the only one with any choice in this equation. That should be a fun conversation.)

"It Can't Be Just About Us"
--Frank Schnittger, ETian Extraordinaire

by papicek (papi_cek_at_hotmail_dot_com) on Mon May 25th, 2009 at 08:39:31 AM EST
[ Parent ]
Well, that's the real problem - the maintenance of power and status relationships for their own sake, even when they're ultimately self-destructive.

Too many people in the US believe that businesses should be run as feudal mini-states, and the owner is literally a king. When customers shop, they're nominally guests, but in fact they're really there to pay tribute. (This pretty much explains everything about how IBM, Microsoft, and other corporates do business.)

The concept of symmetrical obligation seems almost completely alien to the Anglo outlook. Whenever it's suggested it's labelled 'socialism' and greeted with grunting, hooting and pointing, shit flinging and simian hysterics.

The US will continue down its fail spiral until a majority of the population outgrows this outlook.

by ThatBritGuy (thatbritguy (at) googlemail.com) on Mon May 25th, 2009 at 08:51:48 AM EST
[ Parent ]
papicek:
I don't know, frankly, if the US would participate, and if we do, if we would do anything more than try to limit any such conference's work. Shades of Kyoto.
Or shades of Bretton Woods I, where the US scuppered Keynes' superior proposal in favour of a system they could milk.

The brainless should not be in banking. — Willem Buitler
by Carrie (migeru at eurotrib dot com) on Mon May 25th, 2009 at 09:02:23 AM EST
[ Parent ]
Putting $ as world currency was blocked by Keynes, then secretly reinstated.

Patrice Ayme Patriceayme.com Patriceayme.wordpress.com http://tyranosopher.blogspot.com/
by Patrice Ayme on Mon May 25th, 2009 at 11:51:41 AM EST
[ Parent ]
  1. Possibly. But, as Chris is fond of asking, how many barrels does the US have?

  2. No. The most important regulation will be to split the short term secured credit away from the long term credit and ban most forms of short term un- or poorly secured credit. Firms do not use short term unsecured credit for serious investment, from 1950 to 1980 firms were very much able to obtain financing for real projects with a financial sector where short and long term credit was split into two different markets.

If anything, regulating finance should make more money available to the real economy, because less money is wasted on bonus schemes and gambling in the paper markets.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 25th, 2009 at 02:07:40 PM EST
[ Parent ]
papicek:
2) Ok, who has an answer to this: greater regulation on finance and a firmer grip on risk management will mean companies will find it harder to get access to the funds they need to operate. Fine, as far as that goes, it's a premise I'm willing to consider, but to what extent are companies already facing this condition? Are we going to lose more jobs? Are those jobs already the ones currently at the most risk anyways? Or already gone? Have the weak been culled by now?
I think ARGeezerARGeezer links to the answer upthread:
I am struck by how the thesis advanced by NBBooks in his current diary, Debunking the Myth of the Financial Markets, should fit into this discussion.  
As he notes:
Wall Street simply is not doing what most people think it's doing. Nor what most people think it should be doing. Wall Street is not even doing what it says it is doing. Wall Street is pushing a big myth that its services are essential to the functioning of the rest of the economy. But the truth as, as this graph shows, Wall Street does not -- and has not for a very long time -- serve the function of allocating credit in the economy.

The arguments and graphs from Ozgur Orhangazi's Financialization and the US Economy seem cogent.  I realize that selling this idea to Serious PeopleTM is an even bigger challenge than selling the recommendations Wolf has made, but the concepts are mutually reinforcing and the solutions would seem to be similar.



The brainless should not be in banking. — Willem Buitler
by Carrie (migeru at eurotrib dot com) on Tue May 26th, 2009 at 04:05:12 AM EST
[ Parent ]
Here in America and in CA our governments have been "captured" by the special interests and since governments are the instruments which levy taxes, I don't have much hope here for change until a '60s style public uprising occurs. It can happen, just as it did in response to the Viet Nam draft, but more hell has to come first.  All indications are, especially here in CA, that conditions are ripening for just such a hell. I'm actually optimistic.

They tried to assimilate me. They failed.
by THE Twank (yatta blah blah @ blah.com) on Mon May 25th, 2009 at 09:00:30 AM EST
Oh Belzebuth, come help us...

Patrice Ayme Patriceayme.com Patriceayme.wordpress.com http://tyranosopher.blogspot.com/
by Patrice Ayme on Mon May 25th, 2009 at 11:26:51 AM EST
[ Parent ]
as I said in my own most recent diary, the way out of the crisis has been, in part to make the situation worse, lowering reserve requirements to get the thing restarted, making the whole thing even more unstable.

Taxing is good, but my own approach is to endow finace with higher ethics by law (fiduciary duty).

Patrice Ayme Patriceayme.com Patriceayme.wordpress.com http://tyranosopher.blogspot.com/

by Patrice Ayme on Mon May 25th, 2009 at 11:25:23 AM EST
The UK has a strategic nightmare: it has a strong comparative advantage in the world’s most irresponsible industry.

That should read "absolute advantage." "Comparative advantage" is largely irrelevant to international financial services, in that when international financial services are possible, Ricardian comparative advantage ceases to apply.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Mon May 25th, 2009 at 01:26:50 PM EST
Interestingly, when Wolf mentions the analogy between Finance and Pharmaceutical industry:
The sector argues that moving derivatives trading on to exchanges might damage innovation. So what? Maximising innovation is a crazy objective. As in pharmaceuticals, a trade-off exists between innovation and safety.
he echoes the suggestions made by McFadden and Stiglitz during this Nobel laureates meeting in Lindau:to create an angency for regulating finance on the model of the Food and Drug Administration, with the power of authorising (or not) the introduction of financial products on the markets...  

"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Tue May 26th, 2009 at 06:36:41 PM EST


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