³ÉÈËÂÛ̳

Surely there is a catchier title than the Financialisation School but nevertheless they have my vote ( I assume there will be an X Factor style competition). Surely we cannot talk about economics without competition i.e. between two theories. The F School seems to want to deal with the real world of corporations and government and not be beguiled by the l existence of the mirage of 'free markets' - as rare as a Dodo. Hayekian economics or more appropriately - moneynomics - should be taught to freshers before they are allowed to study adult economics to experience the intellectual progress. Could it make a good computer game?

If you don't address the issue of value its all waffle!

The neo-classicals & the Keynesians are marginalists.
They have no objective basis of measurement.

The classicals did & the Marxists do - the labour theory of value.
This enables Marxists to infer when prices run ahead of values.

Take a look at this if you really want to start to understand how capitalism works & why we have crises:

It's time to remove the kid gloves and exclude the left-wing from involvement in this sphere and smash these gangs with an iron fist. As a tax payer..., I want a break in the money I contribute to people either too lazy or too stupid to figure out a better more harmonious and productive way to lead their lives.
........

DERIVATIVE MONEY CAN HAVE NO TRUE VALUE - IT REQUIRES MATURITY TO USE.

The Ape Confused by Language is utterly confounded by money. The level of integrity required for money to 'work' is not found in modern man; add the infinite anonymity of globalisation, and disaster is guaranteed.

markets fail when there is no moral hazard. ie things need to go bust.

if no regulation is good then no regulation in air traffic control, the motorways and medicine standards is also good. if we believe no regulation in those will lead to more mid air crashes, motorway pile ups and mass poisoning then no regulations in the financial economy means economies can go bust. which is what has happened wherever this freedom was taken as the highest idea of the mind. e.g south america, russia, uk, usa.

lets us look at a market with no rules one of the closest to free markets we have -the illegal drug market. do customers get the best price? is the quantity and supply of product guaranteed? what consumer protection is there? how are competition conflicts settled? how do new entrants get into the market?

the belief in the existence of free financial markets is no different to believing in pure marxism. its a belief. Belief lies between incomprehension and knowledge ie it is less than knowledge.

why is the free market a myth? look at china's role. free markets needs everyone to play the same game. that has never happened. anyone think it will ever happen?

there is no boom and bust cycle. we have a boom and public subsidy cycle.

politics demands the perversion of economics. how do you remove politics from the brutality of economic theory? a dictatorship?

20 years in pre industrialisation banking is their proof of a model?

in what way is a bank guarantee the same as regulation? are they interchangeable terms? they talk like they are.

the belief freedom is the highest idea of the mind is a false belief.The good is the highest idea of the mind. freedom has good in it [not unadulterated good] but it is not higher than the good. Hayekism takes the impure and pretends it is the highest. Hayekism is a form of anarchism.

There's also an interesting lecture here :P :

(the event page, but the mp3 is available, i think two clicks away)

Whilst I felt that say 12 or 18 months ago there was a sense that there needed to be a fundamental rethink of a lot of the political-economic structures, both in the uk and internationally, I now feel a real sense of Plus ca change. Crisis over (bar the bill still to be paid) back to business as usual?

Are these old-new ideas as alternatives to the market orthodoxy really being given real consideration by people that matter?

Costas might be advocating this sort of market negating/restraining regulation.

But it needs Polanyi's counter movement (or Gramsci's version) to make it happen.

Osborne aint gonna wake up one day and do it - any more than G Brown would have, without a won't-take-no-for-an-answer focussed demand from people.

In the end, the economic system we have is political - just as the neoliberal market economy is a political project that we have been sold.

None of this can happen at the national level.

Because while economists are arguing theory, we are being tied into hard core international trade law that ensures that we DONT have any financial regulation, despite the empty chat to the contrary, and that there is no backsliding on that old neoliberal political project.

Trouble is - there is no reporting on it.

Eh? Mr Mason

The way I see it is there are two major heterodox schools which both subscribe to the theory that money can get separated from real underlying value. Each has a different, but essentially symmetric view on how finance should be regulated:

- The Austrian school (Mises etc.) which essentially states "Privatised profits and privatised losses"
- The Minsky school "socialised profits and socialised losses"

Either way, each of these is preferable to the grossly asymmetric situation we have now, which is a Frankenstein's monster of the worst parts of each model "Privatised profits and socialised losses".

What's necessary for a successful economic philosophy?

The first is to have a credible model of what exists now. What do I mean by credible? One that is good at predicting the effect of a change in a given variable, and then the effects of multiple changes in multiple variables. The "marginalism" so derided above (@2) is simply a tool of mathematical analysis. The model must be as congruent as possible to reality. If the predictions are wrong, the model is wrong, and needs to be changed.

What is inexcusable is to take or advocate actions based upon faith and wishful thinking when you don't have a good model, or even a model at all. This is the biggest criticism that Krugman makes against the American conservatives.

The second thing you need to do is decide what your social aims are - ie whose side you are on! J K Galbraith observed that Hayek and Friedman were monetary radicals precisely because they were political conservatives. Hayek was a product of the minor nobility of central Europe, a class whose wealth, but not aspirations, were greatly diminished by WWI and its aftermath. Economic policies are rarely neutral: there will winners and losers. Naturally, most of us prefer the losers to be someone else!

The biggest disputes in economics arise when people are not honest about their aims or their data. The present government has tried to imply, Mrs T like, "that there is no alternative." This is not true. Of course there are alternatives, but ministers have made a political choice to protect themselves and their friends at the expense of the poor. Some of them are tax avoiders themselves, so they won't tax the better off, or tackle tax avoidance. Instead they will cut services that most of us rely on.

#9

Spot on!

'' Either way, each of these is preferable to the grossly asymmetric situation we have now, which is a Frankenstein's monster of the worst parts of each model "Privatised profits and socialised losses". ''

A truly obviosuly disgusting state of affairs conveniently glossed over by old school tie network silky rhetoric and compliant grossly leveraged media.

What is the ³ÉÈËÂÛ̳'s excuse then?

Academia (as embodied in Pauls post in part I have to say) has some culpability also, academia (in economics in particular but this is a common theme I must say) LOVE to make simple situations seem very complicated.

I guess you can't sell a book or fill a lecture or NN interview or justify a year long committee with subsequent 200 page jargon filled report with the simple truthful repeated uncomplicated assertion... where is the career in that sufficient to slowly grind your way out of unecesarry debt slavery over the course of an unecesarry 40 year career creating work for yourself??

''Frankenstein's monster of the worst parts of each model "Privatised profits and socialised losses" - break up the banks (etc) NOW...

Simplify g'damn it, simplyfy.

Jeremy paxman take note and use the above or similar wording repeadedly and without mercy for any self styled economic 'expert' you interview.


Nice one Hawkeye.

10

yes. in a zero sum game for someone to be paid above average means someone else has to be paid below average. So how can one stop measuring jobs only in terms of money?

If for a society to function all jobs must be done well then one can say no job is more important than any other. So if in the bbc, say, everyone got the average wage [40k] then the new criteria would be to get the most interesting jobs, the ones that provided most satisfaction for individual characters and find personal fulfilment not in money but in creative experience.

One would reject those false arguments that people use to bend away from the average wage such as 'talent' etc as vanity, greed, discrimination and anti team building. No 'talent' can work without the rest of the team so why should anyone get more at the expense of anyone else in the team? Anyone who went around demanding they should get more at the expense of everyone else would quickly find they were no longer 'part of the team'?

Such people want to create a system of winners and losers which is what today we call capitalism. Everything else like taxation etc have been used to try to redistribute the winners money back to the losers via the state which is highly inefficient, open to corruption etc. So we can see the winners and losers model creates numerous social evils.

Now one might see, in the current climate, the average wage model as ludicrous and impossible because no one would accept it. But then lets see them justify the winners and losers model as having more good?

We should have smelt a rat the moment the banks and hedge funds started hiring theoretical astrophysicists to model the maths for them...

Steve Bell's cartoons in the 1980s used to joke about "dog sh*t futures trading" - a neat way of questioning the viability and legitimacy of derivative and futures trading that powered the growth of the City.

The financiers found ways to attack the price mechanism and have made it ineffective - it doesn't matter if you're a Hayekian or a Keynesian - if market signals only work through price - and if the price is a delusion, so is the market.

How did they do this?

Firstly through Obfuscation - deliberately making financial transactions so complex that those involved in them can no longer understand what is going on - "collateralised debt obligations" and "special financial investment vehicles" to name but two.

Secondly through systematic fraud - the rise of the NASDAQ and the "day traders" created the perfect playground for fraud at all levels. Bernie Madoff's Pozi scheme is the pinnacle of this, but there was systematic fraud going on that was never addressed such as "pump 'n dump" of Small Cap companies that fleeced small investors - indeed many companies floated and listed on the NASDAQ/OFFEX/AIM etc as PLCs could never even recover the cost of being listed as their profitability wasn't enough to afford it - but those selling their holdings made a mint on the float - then many companies simply went bust in the following years. This led to the massive overvaluation of these equities way beyond the underlying value - and as most trading wasn't ever based on the actual companies' prospects, but on what investors thought OTHER INVESTORS THOUGHT would happen, the share price then had nothing to do with the value of the business. WorldCom, Enron etc played the same game at the top end of the market.

Thirdly through "popular capitalism" - small investors were persuaded to directly invest in equities - "Tell Sid" being the most memorable in the UK. Normal savings for a pension are carried out by funds that pool risk by owning a wide range of stocks, property, etc and invest for the long term. By sucking individuals in, when there is a bear market they end up holding the shares when they go down in price, so take the loss. If the State, your bank and your neighbours all tell you that you should own shares and that these companies' shares are offering you a great deal, then yet again the price you are prepared to pay bears no realtionship to the actual underlying value.

Fourthly through creating a media environment that offers the prospect of good profits, the City could access private money held by individuals and create products based on derivatives and futures trading rather than the stocks, assets or commodities themselves - i.e. selling thin air - it seemed legit, but actually is the same as gambling on horses, roulette wheels or cards.

Fifthly, by tapping into the wholesale money markets, particularly petrodollars, then retailing capital to people to buy houses, cars etc., banks were able to pump excess demand into these markets, which we can see in the UK's inflated house prices and the attempt to develop new markets such as buy-to-let. The banks could then package these debts up, collaterise them, sell them off to pension funds etc and get the risk off their balance sheets. This trick creates multiple delusions about price: the wholesale lenders thought they were bankrolling a real market, the banks thought that the margin they made on wholesale rates vs. retail rates was easy, low risk money and the borrowers were deceived about the real value of the houses they bought - and the risk/return ratio of the loans they took out.

Sixthly through "private equity" - get-rich-quick entrepreneurs who find a boring company with loads of assets - they buy it and take it private - then realise the assets, load it with debt, squeeze the margins as hard as possible, e.g. cut wages/staff - then refloat the company back on the public market. With the right spin and marketing, private equity's ability to suck the value out and then deceive investors about what is left for them to invest in means that the share price is in effect a deliberate deception.

There are probably dozens of other examples of systematic failures in the price mechanisms we rely on to make markets operate - some intentional, others accidental, but my point is this:

UNTIL WE HAVE "REAL" PRICES REFLECTING REAL VALUES, WE DON'T HAVE REAL MARKET FORCES OPERATING.

And if the market doesn't work, only Governments can do anything about it.

And all this deception and delusion was magnified because of "gearing" - i.e. borrowing or lending several times what you actually own. Once the house of speculative cards comes crashing down and destroys the deceptive value, it takes out the financial institution that holds the debt as well as the individuals who took it on.

But because regulation was perceived as distorting or constraining the market, these institutions were allowed to become so fundamental to the market that they couldn't be allowed to fail - so the State taxed its citizens to prevent this - another delusion about the real value of the banks, the nature of their profits and what price society should charge them to reflect the risk they pose to us all.

For Hayek, Adam Smith, Keynes even Karl Marx, the concept of the "price mechanism" is a fundamental element in their analysis of the nature of capitalism - if it no longer works then all of their theories no longer hold water - and we must either intervene to remove the deceptions and delusions or we must find a new way to channel resources.

Over to you, Paul.

The momemt the line is drawn down the page, even before the credits and debits are enscribed the outcome is assured - conflict. Keynes, Hayek, Marx ( in the same way as Hegel) Smith all need to reach beyond their system to find the secret. It was Polanyi ( Michael not Karl) who called this "the Tacit Dimension" and of course took the impermissable step of effing the ineffable.

Two possible solutions :

1) sit down and wait for the Divine Violence - Zizek
2) Forgiveness and equivocation - a radical Jewish rabbi from 2000 years ago.

#13

I totally agree. Defunct economists are merely the slaves of (insidious) practical men.

To me (and many others), everything points to an "Inside Job":

/blogs/thereporters/stephanieflanders/2011/02/the_return_of_the_deficit_deni.html

One for the moderator:



If the censorship has got to the paranoid level then it is time for me to say goodbye!

glad to see Jeremy back....

Hmmm Some people here are commenting about Keynes who have clearly never read his work, or even good summaries of it.

Keynes and Galbraith were very strong about the damage done by gambling on the financial/stock/commodity markets. The problem was always the vested interests who prevented anything being done about it.

Here are a couple of quotes from Keynes and Galbraith I posted previously:

/blogs/thereporters/robertpeston/2010/09/lord_turner_blame_the_policyma.html

A very good introduction to the history of economics and economic thought is Galbraith's 'Age Of Uncertainty', based on an excellent '70s TV series. My first copy was nicked by a student of mine, but I recently acquired a good second hand copy from ABebooks.

Galbraith wrote well, was very entertaining, and was an empiricist. not an economic theologian.

O.K in view of the unnaceptable level of censorship this will be my final post on this blog :

IS IT A DUMB QUESTION TO ASK ABOUT 'AAA'?

During the crash, I was led to the conclusion that there was a tiny room somewhere with one witless rubber-stamper in it. Bundles, of unknown monetary instrument came in, were stamped UNINSPECTED as AAA and went out of unquestionable worth. There was, I gather, a global connivance, to the effect that this office was of absolute integrity.

Was the office ever raided? Has the AAA stamp been confiscated? How is Witless doing - is he employed these days?

Comments please.

Yes, all very intellectually fascinating.

For some reason an image of a bunch of very clever but very dull men in tweed jackets, slippers and smoking pipes comes to mind. In another life I can imagine you all standing around a lawn-mower engine and staring intently at it for an entire day.

I think you would be better off debating why tins of baked beans are getting smaller and now contain more juice: that chocolate bars are shrinking and just about every food item you buy now has either shrunk, got lighter or gone up in price. Bacon rashes are being sliced thinner.

People don't suffer, or riot for that matter, angsting over which branch of Economic model should be pursued. They tend to get a tad upset when a loaf of bread becomes unaffordable or they can no longer afford the fuel that gets them to and from work.

Back to the real World please gentlemen.

Barrie,

Yes, these sorts of questions never really get aired in the mainstream media. I recommend David Malone:



Other places where genuinely insightful questions are raised include Max Keiser, Zerohedge & also William K Black, e.g.:



But then these people are very good at covering their tracks.... for the moment..... the worse thing they fear is bankruptcy for this will expose the AAA scam for what it is - modern Alchemy.

Mr Mason would you please publish the internet and geographical addresses of both The Austrian School of Economics and the Financialisation School.

Are admission-starts usually in September / October ? When do applications close ?

PS Is fluent German required for the Austrian School ?
PPS I am looking to do an MBA/or Econ Masters. Which place is better in your view ?

I'M A KEISER FAN BUT ONLY BECAUSE HE IS (as he would say)NUTS (#22)

Thanks Hawkeye. Too idle to read all that - and a lot I wouldn't understand. Didn't see any mention of AAA when I scanned through.

Of course, alchemy would bankrupt all the gold investors - another disaster. What a circus.

In passing: I wonder if, under the 'Big Society', we should ALL have a chance to gratuitously 'advise' some far land - preferably one we destabilized at some time? That EDL chap would maker a better job of it than Hague and Dave.

21 Listening to too much Jenny Murray again have we Germaine? And talking of germane ....quite how did that load of old Kirsty add any value to this debate ?
I have a lathe and milling machine and hundreds of other useful tools tawsey....let`s guess that you confine yourself to a large bottle of vitiol ink and a new set of brogues ever six months?

I am grateful for a number of Hawkeye's recent posts and links. Max Keiser is good, but not as good a comedian as Jon Stewart.

There is no news organisation which tells the truth, the whole truth and nothing but the truth. The rest of RT does have a sort of neo-Soviet slant, but is nonetheless worth watching as it focusses on real issues that other media ignore. Al Jazeera is in its own way as honest as the ³ÉÈËÂÛ̳, but with a different cultural bias.

Bill Black is a modern hero - I hope he lives to a ripe old age and dies in his bed! If you haven't seen this, the Moyers - Black interview is well worth seeing - again and again!



However, I'm very concerned that the dark side is taking over the state in the US. This post from Krugman a few days ago is chilling - as is the mindlessness of some of the blog comments.

#26

Or maybe the darkside never left, it is just, temporarily, more visible now as a result of over-indulgence on their part which led to a near total collapse which the 'hard working families and small business' would not be able to support.

@27 Actually Jericoa, you're right. All my life there has been a very evil side to the US, though many very decent people live there, and sometimes get elected to public office. It's every bit as bad as the conflict has traditionally been in Italy, between the mafia and civil society. This last interview between Moyers and Black really brought it home to me.



It's a bit like the Alien. The head at the moment is human, but the corporate-political monster is showing signs of bursting through the heart of their society. We must do our best to stop the infection spreading to the body politic of the rest of us, but it probably already has. Is there any cure?

#28

We are as one on this I think. I have a lot of time / respect/ jealousy even ( or at least i wish i could be more like them) for the American ( almost childlike)positivism, friendliness, inovation, energy, optimism and innocence which seems to permeate through their grass roots 'hard working families and small business'.

I absolutely hate how that energy, which could be a huge force for the greater good, seems, so often, to be misdirected / hijacked in their name for ends which the majority, if they grasped what was happening, would find deeply offensive to their core values.

@29 I agree.

Back to the main thread of the discussion, I have often argued that the worst problems with economics, right or left, arise when it becomes a matter of theology rather than an empirical science. Here is an interesting article (and link) from Krugman a couple of weeks ago, regarding the Vatican's view.



Krugman often expresses the opinion that an economic system does not function like a morality play, though one can use moral arguments when deciding what actions to take.

Enjoyed the first part of the radio program and look forward to the next instalment. One of the proposals of the Hayek school is to do away with the central banks. They currently provide a useful source of information for researchers and interested parties on the aggregate position of the banking system.

For example, the Central Bank of Ireland provides evidence of the scale of the withdrawal of deposits from Irish banks - 352 bn euros since December 2008.

The interesting thing about this reduction is the split between Irish residents and Non-residents:

Irish resident deposits
Dec 2008, 351 bn
Dec 2009, 358 bn
Dec 2010, 346 bn

Hardly changed over the last two years.

Non-resident deposits
Dec 2008, 694 bn
Dec 2009, 525 bn
Dec 2010, 347 bn

Non-residents have withdrawn half their deposits in the last two years.

The Irish residents seem to believe their deposits are safely guaranteed by their government. Meanwhile, the hot money is moving out.

Table A.4

The Central Bank of Ireland have updated the published data for Dec 2010 since yesterday (Wed, 2 Feb).

They have removed the historical data going bsck to 2003 that was there. It now only goes back to Dec 2009! Not much use for seeing the trend.

They also have two notes on changes between Nov and Dec 2010:

Amounts shown for loans are now shown at nominal value, gross before deductions for impairments. (Mark-to-fantasy rather than mark-to-market).

One credit institution is no longer included. No indication of which one or how large the impact is on the total figures.

Perhaps the Hayek followers have a point about the futility of central banks if the published data is misleading or removed.

One in five workers 'fears losing job'

/news/business-12362171

Somethin's gonna blow.

(I don't know what Hayek or Keynes would say about that, but Marx was probably right)

It's all good Bob:

/news/business-12363911

So long as we all agree our houses are worth more and more we can then borrow off other countries and pay it back by agreeing that our houses are worth a bit more!

Nice to see the ³ÉÈËÂÛ̳ has fallen in behind Balls on the need for cuts. Reminiscent of the ³ÉÈËÂÛ̳ throwing in the towel before the Iraq war when they suddenly realised their remit would be reduced unless they towed the line.

@33 Keynes opened the concluding chapter of 'The General Theory' with these words:

"The outstanding faults of the economic society in which we live are its failure to provide full employment and its arbitrary and inequitable distribution of wealth and incomes."

Note, that this was not the statement of a 'neutral' economist. There is no such thing: it was a declaration of whose side he was on, and what should be the aim of economic policy. The rest of the chapter was less a polemic, but rather a summary of the conclusions of his book as general priciples to guide policy.

Away from Keynes, here are two very interesting analyses, the first on the causes of slavery and serfdom:



The second of the economics of a POW camp:



The latter of course is a special case, but it does rather highlight the flaws in the labour theory of value.

Personal insolvencies at new high in England and Wales

A record number of people were declared insolvent in England and Wales in 2010 although the number of new cases fell in the last three months of the year.

/news/business-12364440

The fall was probably due to the unseasonable ice and snow

Well the judaochristian models of economics seem to have got us in a right old up to our armpits mess .....is there a muslim model of economics?

21 tawse57.

I know that feeling but in those days you never wore your slippers in the garden and that would be the only place where you would expect to find a lawn-mower engine. It sounds like a memory to me and not a bad one at that.

I think what you mean is forget the theory. This sounds like Nanterre in '68: `art is dead, storm the reality studios'.

Try reading up on the Situationists: always assuming you can find them intelligible. Phenomenology still pervades the further shores of anthropology and archaeology. It isn't respectable but its fun.

The Situationist argument is that real power rests in everyday life. All those little people going busily about what has meaning for them, not responding to to the demands of the state or big business. Sadly, part of the problem is that many of those people have been conditioned to consume. Their lives are not their own: their alienation drives their need to purchase non-essential items for reasons of psychological comfort. To reassert proper human relationships requires that the consumer society consumes itself.

Are we looking at this very phenomenon? I doubt it but the endless pursuit of debt in order to satisfy some bloke-ish lust for gadgets or some girlish pleasure in fashion has pushed many into deep water where they can't swim. The only way to escape is not to buy, not to borrow but concentrate on the rich tapestry of everyday life.

The economists are trying to make some sense out of what has happened, to redefine the problems and thereby identify possible solutions. I think there is a risk in being over-dependent upon theory. Some will argue with this but it is quite apparent that a lot of the Coalition economic strategy has been based on pulling the right levers and pushing the right buttons in the expectation that growth will happen. I love that sort of optimism but I have no faith in it. It is the road to broken dreams.

I still have my father's first edition of Keynes' General Theory. But he preferred Lasky in those days. I also had the great pleasure of meeting Hayek, funnily enough in '68. In those days I was red and black in tooth and claw but he treated me with the utmost courtesy and cheerfully told me a tale of Barcelona in '36.

Ideas are a product of their time, they have a context of their own that need to be understood. They are not algebraic equations but the consequence of a particular time, individual experience and specific circumstances. Economics is not a science: it is a philosophy of human engagement with the environment and with each other. It has to change, it has to evolve for the simple reason it needs to be attached to everyday life in order to work. Prior to 2008 economics had become detached to become the property of rocket scientists. Now it has returned to earth.

Economics is not dead: its rythmns move on.

Just two issues to throw into the pot:

1) The study of economic equilibrium on the assumption that this provides us with useful insights into the real economy probably isn't valid.

2) All the isms of the 19th and 20th century proceeded on the basis that natural resource depletion and man-made climate change weren't an issue. We now know they are.

Within the realms of the conventional macroeconomic questions then I would commend the works of Steve Keen and Richard Goodwin. Steve Keen is out there on the internet. Unfortunately the works of Richard Goodwin are not so easily found. I want to quote from the Introduction of Goodwin's "Elementary Economics From the Higher Standpoint" to give a flavour of his approach. I have no idea if this book is still in print.

"The peculiarity of economics is that everything depends on everything else, or at least on a number of things.... An immediate consequence is that if we state our problems in all their completeness, they become, for practical purposes, in soluble, not in in principle but simply because they are too complicated.

"There is really no completely satisfactory resolution; any method has its gains and disadvantages. Marshall developed the ceteris paribus approach, which handles the bits and pieces well, but loses the drift of the whole, or worse still, may be positively misleading. By contrast Keynes dealt with aggregates which allowed him to treat the whole of the economy, but only by some rather rough handling of the parts. An alternative way out is to take an economy so simple that we may analyse the functioning of the parts and yet see how, by this mutual conditioning, they generate the behaviour of the whole....the aim is going to be to elucidate the how and why of some basic concepts, with attention drawn to various pitfalls of their use... Another reason for treating an extremely simple economy is that... it is essential to introduce dynamics from the start....it has been customary to restrict discussion to the case of one good (aggregates) but by extending ourselves to two goods we do get the essential element of interdependence without unbearable difficulties first.

"Most of the crucial decisions shaping the economic structure occur in the productive sphere, e.g. what shall be produced, how produced, at what price, and most of all, how much each consumer is given to spend on consumption."

All this was said 40 years ago. And yet 25 years ago it was possible for me to complete a degree course in economics without having heard of Richard Goodwin. So a third point may be the poor teaching of economics.

But forty years after Goodwin wrote these words economics has to retool again to support the economic policy we need in the twenty first century.

There are a number of points which immediately come to mind:

1) Over a period of 200 years plus there has been an immense expansion in the productivity of our species because of i) the application of technology, ii) the discovery of coal and oil.

2) The development of advanced (developed) national economies has followed individual paths that have resulted in different levels of inequality which correlate with different levels of social ills. For further on this point the work of the equality trust refers.

3) Following on from 2) above. This has occurred even when we are supposed to be following the same (capitalist) system. So how do those individual paths manage to diverge and what does that tell us about the ability of national governments to set their own economic policy in the face of international financial markets?

4) Economic development means the application of fossil fuel based technology and the migration of people from food production to the cities. As more of the world does this the depletion of oil, its rising price and that of food has the real potential to cause serious economic and social problems.

5) The greater application of fossil fuel based technologies around the globe results in destabilising human induced climate change and environmental degradation. We are in the situation now of where an important carbon sink - the Amazon Rainforest - may become a net carbon contributor because it is suffering droughts. That is worth stopping and thinking about: a rainforest that suffers droughts.

6) So economic growth and more and more of it may not be possible because of the pain of switching the technology base away from fossil fuels, whilst it also inflicts environmental degradation.

7) Further, economic growth and more of it is not a sure route to greater happiness. Most especially where it produces greater inequality. Measuring the success of an economy/society in delivering a greater sense of wellbeing is going to be important going forward.

8) Goodwin mentioned that the important decisions in the economy happen in the process of production. We seem to have got to the point where the individual is a consumer who buys things that are of questionable quality (designed obscolescence) that we don't need (remember economics sidesteps the study of the provision of needs by just dealing with consumer preferences or "wants") to impress people who we don't care about.

9) The productive capacity of the world economy periodically suffers destruction and waste in the form of economic crises which means that productive capital and labour lies unused and coexists with unsatisfied needs.

10) The application of technology has revolutionised the productivity of human labour, but without necessarily making the work involved more interesting or fulfilling. Some people would say invariably without.

11) Whatever the achievements of the application of technology to production this aspect of economic activity has, in a number of still significant countries, been overwhelmed by the utility called the financial sector. For instance i) The day to day global movement and trading of electronic money balances from account to account is now a core economic function of some advanced economies which is seen as a stricture on national economic policy. ii) The production of electronic money out of thin air as debt in return for the promise to repay at interest has produced a bloated financial sector which has the potential to further exacerbate if not instigate economic crises. (Steve Keen's analysis refers).

12) Even though it is the advanced economies now that have large financial sectors throughout the last 250 years the economies that are seen as "doing well" in a narrow economic sense are those that produce goods. This curious paradox points to the damage of conventional opinions in the 70s and 80s that the whithering of the manufacturing sector as something that was "natural" and even to be desired.

#38 and 39

Both very good posts, I wonder for how much longer vested interests will suceeed in preventing such obviously logically coherent views (as oppose to the prevailing 'physical growth' relient ones)from entering into mainstream consciousness.

Interesting to note DC today speech in Germany (worrying choice of venue for such a statement) 'multiculturalism is dead'.

I guess that is easier to say that than 'the global economic model and the way we live our lives in the developed world is dead'.


He has got it backwards, first you provide a positive coherent vision, suitable for its time which people can get behind and obtain a sense of wellbeing from, then fractious multiculturalism issues will take care of themselves. 'The big society' is not cutting the mustard i'm afraid.

I am not sure anything will to be honest, the reality of the economic situation will probably have to cut much deeper first into the real lives of real people at which point there will (hopefully) be a choice to 'tea party' or not to 'tea party'..that is the question.

I think what we need to be discussing is the theory that explains just why capitalism has periodic crises.

Keynes argued that 'economic equilibrium' can occur at levels of high unemployment; why? Let's have a detailed explanation from the Keynesians.

The Austrians tend to blame Central Banks & Trade unions; again some detail please.

For my part I'm happy to detail the Marxist explanation, as I have tried to do many times before.

Any takers?

Considering how long ago Marx was writing it is remarkable that his analysis has held up for so long. This is because he puts labour at the heart of the economy, where it belongs. At the end of the day the economy can be boiled down to two factors: labour and land. Unfortunately Marxists have rejected the benefits of 'the market' which is essential for labour and land, which is in fixed supply, to be allocated to best use.

#42

My having labour (& land) at the heart of analysis it becomes evident that all profit comes from labour & that the market is a social relationship.
In otherwords, those who control the means of production - capital as well as land - control those who only have their labour to sell.
The market is the cover for what amounts to slavery - except that the labourer is free to starve!

Direct democracy allocating resources will have a far better outcome because it is not the profit rate - the return to those who own just about everything - but society as a whole setting priorities, e.g. ensure everyone is fed, everyone has a roof over their head, etc & very importantly making sure everyone contributes.

A little disappointed with the second episode of the radio show narrated by Paul Mason himself.

The first show on Hayek was more convincing - even though I am instinctivly drawn to Keynes (Marx?).

Who were the Marx Brothers anyway?

Most people have an idea of the ideal world. A utopian one.

We also fear a dystopian world - where it all goes horribly wrong.I trust the people with real power and influence share the the common goal.

Certainly hope so.

Oh good lord. The problem is Fractional Reserve Banking.

Why should banks be allowed to create and destroy money? Their purpose should be to *move* money from where it is not needed to where it is needed. Creation of credit from nothing is basically counterfeiting, it's fraud.

The fractional reserve allows banks to increase credit and debt exponentially. Go take a look at the national debt or the total debt of any country, it is an exponentially increasing curve. It is effectively a huge Ponzi scheme, creating bubbles which are invariably followed by busts.

It is a fundamental tenet of the Austrian school of economics that credit expansion will be followed by a contraction, and the bigger the boom the bigger the bust. Mises demonstrated it 100 years ago. Credit expansion is caused by and allowed by the fractional reserve.

Require Full Reserve Banking. 100% of lending must be from existing money. When you don't get to have your cake and eat it as well, the insane booms and busts go away. The Ponzi stock markets go away. Recessions and depressions go away.

People can get on with using money productively as a means of exchange.