By Bernard Hickey
There's a question at the heart of the global economic malaise that is also a key question for John Key: What happens if everyone saves at the same time and stops spending?
The Prime Minister seemed to capture the mood of the moment before the November 2011 election when he called on New Zealanders to vote for government austerity and 'zero' budgets to keep net public debt below 30% of GDP.
This public desire for self flagellation was counter-intuitive to an MMP generation where politicians bought off voters with ever more of their own money.
This austerity theme has been the central to this government and the public have largely accepted it because austerity and debt reduction is at the forefront of our own household budgeting thoughts. John Key's uncanny knack for judging the public's mood didn't fail him in 2011.
Ever since the Global Financial Crisis, most New Zealanders have been trying to pay down debt. Households kept their mortgage payments up at 7% mortgage rate levels even though rates fell towards 5%. These repayments are almost offsetting a surge of lending at the fringes to first home buyers and some returning rental property investors.
Total household debt rose just 1.8% in the year to the end of June to NZ$187.9 billion, which is less than growth in household income. That means households are beginning to de-leverage, albeit slowly.
Also those who have already paid off their mortgages are saving more. Household deposits rose 8.8% to NZ$108.9 billion in the year to end of June. To put those two forces together, household deposits rose NZ$16.8 billion in the last two years, while household borrowing rose NZ$5.2 billion.
That means NZ$11.6 billion less was spent in places where it could be recycled in the form of wages, profits and taxes. This is one reason why voters didn't mind voting for austerity. It seemed fair that if voters were denying themselves spending, so should the government.
It also seemed to make sense given the government had been on a real spending spree in the years before the 2011 election. Luckily for the economy, the government spent an extra NZ$7.2 billion in the last two years. That offset most of the NZ$11.6 billion less being spent by households.
But now we have a problem.
The government is carrying through on its promise to run 'zero' budgets over the next couple of years. There will be no offset to the continuing restrictions in spending by households as they save more. That means the businesses and exporters are expected to pick up the slack by spending and earning more. The trouble is they're not, in part because the rest of the world is doing exactly the same thing, spending less and saving more.
This is the Paradox of Thrift.
It makes sense for one household to save, but when every household, the government and businesses do it in tandem, you get a recession.
When everyone in every country does it, the whole world has a big, big problem.
Right now policy makers globally are almost all now fixated on austerity and debt reduction.
They're all assuming someone else will pick up the slack and spend money on whatever they're producing. The Chinese mostly assume it will be the Europeans and Americans. The Americans and Europeans are hoping it will be the Chinese. New Zealand hopes it will be the Australians and the Chinese.
It's as if a bunch of cricketing outfielders are all looking at each other shouting 'Yours!', only for the ball to drop to the ground between them.
At some point policy makers will have to pull out of this Global Paradox of Thrift, including John Key or whoever follows him.
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This piece first appeared in the Herald on Sunday. It is used here with permission.
107 Comments
Time for the streets !
Again I ask, in the current worldwide depressionary environment, who will stop our local and central governments megalomaniac economic ambitions and mismanagement of our economy ?
I do not understand the general political laziness of the younger generation in this country. With the current government they have no future, but pay massive rates/ taxes/ insurance/ costs of living/ etc.
Unemployment the new growth here in NZ and other western countries. We are just not productive enough, but allocate skillful jobs to foreign countries/ companies.
The idea of Govn spending in a recession is to temper the worst of it and get us out.....if there is no out then its questionable if the Govn should spend.....
My problems it the bridges to no where syndrome....so we'll build more roads to handle conjestion which will never appear as ppl leaves the roads due to costs.
regards
how bout the govt build houses???? wow, there is a novel idea.
We supposedly have a big housing supply problem - so there is a real need for housing.
so how about the govt builds more houses, and council free up planning controls so devleopers can also build more houses?
Not only would that create more jobs, it would also make housing more affordable, allowing people more discretionary spending power, and would also help prevent further inflaiton of a dangerous housing bubble
there you go, all too easy apparently for the dimwits in the capital
Mist42,
Far better to be wasted by allowing people to "waste" and consume by keeping their own money rather than giving it to state sanctioned financial speculators who invest in offshore markets. Don't you see the link that sovereign funds have in depressing equity yields in the world's financial system? Sure its good for those who are interested in short term returns but its a losing proposition for pension funds and the like who aim long term.
I always thought that to deleverage one had to owe less than one did previously, however deleveraging now means that as a percentage of some other figure what you owe is now a lesser amount.
IMHO we have have not deleveraged in the true sense, but it is only when we use derivative measures that we have, i.e. according BH's derivative measures we have, according to RBNZ nominal measures we haven't.
In March 2007 Total Housing Loans stood at $144,475m and consumer loans stood at $12,782m (RBNZ table C20 Household Financial Liabilities).
Currently as at march 2012 respective figures are $174,640m and $12,262m.
If this is deleveraging what does increased borrowing look like?
Maybe the reduction in spending is not due to deleveraging but due to people that have discretionary income spending less and those that don't being unable to spend due to the increased fixed must pay costs such as rent, rates, power and grocery bills going through the roof.
If these were my household figures, I wouldn't say that I has deleveraged but had borrowed against my assets to keep my head above water but my rate of borrowing is reducing because I know I am reaching my limit and need to keep sum ability to borrow for a rainy day.
I get so tired of this same 'ol same 'ol claptrap that suggests if citiznes are not spending - governments should.
To that can I say - and listen carefully, Bernard:
The economy IS the people (not the government), stupid!!!!!!
And more so in NZ than most places - as we are (and I can't think which British politician said it of us): a nation of shopkeepers. Meaning, small businesses selling stuff to one another locally.
So, why then, given household deposits are on the rise;
http://www.interest.co.nz/charts/credit/term-deposits
Are we not spending our excesses?
Because of the low interest rate policies of central banks!!!!!!!
Everyone with savings of the liquid type at the moment has one thing in mind: to preserve capital. It is the uncertainty associated with these ZIRP 'forever' and potentially NIRP (if the crooks remain in charge) that has the general population of net savers closing their wallets.
Give me a just and decent rate of return on my savings and I'll go out and spend those after tax earnings. Heck, I might even over time develop enough confidence in capital preservation to invest some of that capital in a working asset ... like shares in someone elses business (which is benefitting from confidence being restored through a demonstrated ability for the prudent person to preserve capital) or in starting up my own busniess venture.
In the meantime, the government borrowing more to spend on cobbling the footpath in front of the cafe isn't going to bring the customers back!!!!!
Other similar trains of thought here;
http://www.nakedcapitalism.com/2012/01/philip-pilkington-is-qezirp-killing-demand.html
http://gonzalolira.blogspot.co.nz/2012/02/perniciousness-of-zirp.html
Kate,
Saving in a period of low interest rates just proves the fundamental irrational nature of people's economic behaviour. Its ironic people were going on a spending binge and taking on high levels of debt in a period of high rates and then they cut back spending when the economy needs them to spend and they gain little return for their savings. And why do people not see the obvious relation between interest rates and their saving? Interest rates are as subject to supply and demand in the economy as anything else, though its also distorted by Central Bank manipulation, but not to a degree that most imagein particularly here in New Zealand. If theres a plentiful supply of financial liquidity available from savings, interest rates and therefore return on investment will fall. Not rocket science.
The Reserve Bank's power isn't as omnipotent as you'd imagine. Even Alan Bollard acknowledged that Central Bank's monetary policy is at the mercy of the behaviour of the financial markets and global financial flows.
"A recent speech by Ben Bernanke observed that financial market globalisation has made the Fed’s analysis much more complex. He notes that even for the US there is no such thing as total monetary independence...e. For example, correlations between long term interest rates in the US and other industrial countries have risen significantly. Having said that, he concludes that, despite Alan Greenspan’s term of “conundrum”, this has not significantly constrained their ability to influence domestic financial conditions....This is more problematic for a number of small open economies with higher interest rates – not only New Zealand, but also Iceland, Hungary, Australia and South Africa. The downward pressure created by abundant global liquidity on market interest rates has had implications for the operation of monetary policy.In general terms, the Reserve Bank has most impact on the shorter end of the yield curve, both by setting the OCR itself and influencing market expectations about the outlook for monetary policy. But further out the yield curve, other factors – including global interest rate developments and country risk premia – also influence interest rate levels."
http://www.bis.org/review/r070315a.pdf?frames=0
"Everyone with savings of the liquid type at the moment has one thing in mind: to preserve capital. It is the uncertainty associated with these ZIRP 'forever' and potentially NIRP (if the crooks remain in charge) that has the general population of net savers closing their wallets."
One doesn't preserve capital when the return on savings is less than the rate of inflation. People's uncertainty is being stirred up by doom lade media coverage based on events well beyond our shores. Its politically expedient for politicians and their economic consultants to allow tales of crisis and doom to pervade the media and public discource. I'm on public record warning that the political elites will use the crisis to justify fundamental changes to the safety net provided to workers in a period where the elites grudgingly made concessions to worker power in return for retaining their economic and social privileges. Now that wealthy elites are in no danger from being overthrown by mass movements of the working class, due to the atomised nature of our society, they're intent on stripping the institutions that provide a modicum of protection which seperate the poor from squalor and penury.
I see an eventual return to the "Struggle for Existence" that prevailed in the Victorian Age, a time which one doesn't have to resort to Marxist propoganda to describe as a terrible state. Darwin's bulldog Thomas Huxly does an admirably good job with remarkable candour in his work, Struggle for Existence. He also declares that people, if they do not wish society to descend into a brutal Hobbesian battle of all against all, we need to encourage the development of public infrastructure to prevent the immiseration of those unfortunate to fall beneath the heedless progress of the industrial economy.
http://aleph0.clarku.edu/huxley/CE9/str.html
"Give me a just and decent rate of return on my savings and I'll go out and spend those after tax earnings."
Why would spend at a time at a time when you can get a high return for foregoing consumption? You must be expecting a truly high return to outweigh the opportunity cost of the capital you would lose to consumption. The logic doesn't make sense to me. You're a smart woman, your argument is totally at odds with that. If many other people's economic behavior is driven by similar thinking its no wonder the economy is in the shape its in.
I'm an environmentalist as well as an anarchist so I'm no unquestioning cheerleader for economic growth, but I have to acknowledge that people need money to circulate through the economy for our mere survival in order to pay rent, power, food, and taxes for social security for the disadvantaged. When you allow capital to sit idle in a bank account at a time of persistent low interest rates it helps neither yuurself nor society. They say that the difference between a recession and depression is that, its a recession when your neighbour loses their job and a depression is when you lose your job. For many people in New Zealand we're currently in a recession, but if the thinking of people like yourself persists, we'll rapidly enter into a depression.
I guess it can give people a satisfying degree of moral superiority to compare their prudent saving to other people's spending habits. After all that is the bedrock of Puritan morality that has been with us since the Reformation. Though the Puritans have always conveniently ignored the fact that because of the way our societies are structure in their favour, they can AFFORD to prudent, because they themselves have money to spare, whilst most of us don't. That truth is one that the advocates of "sound" or "hard" money fail to consider. Without the transition to an economy based on a money that is more emphemeral in nature we wouldn't have a society in which spending power is pervasive, because the medium of payment is accessible to ordinary people, to a degree that is historically unparalled degree. No emphemeral money, no pervasive consumer economy. Simple.
I don't accuse you of holding those views, but it is a pernicious world view that is likely inseperable from individualistic capitalism/"free market", something that funnily enough is something that exists only in the minds of capitalists and in the the writings of those who have a blueprint they would like to impose on society (Marx et al). (Paternalist welfarism has always existed in parallel with capitalism, without it capitalism wouldn't exist), but it doesn't stop people from pontificating people pontificating about its supposed benefits in the public arena. We would all like to imagine we're all rugged individualists who have prospered solely from the sweat of our brow, but its nver been the case, particularly since the evolution of capitalism.
An excellent argument in rebuttal. I agree with the stream of logic - for example;
Its ironic people were going on a spending binge and taking on high levels of debt in a period of high rates and then they cut back spending when the economy needs them to spend and they gain little return for their savings.
Ironic, yes, - irrational, probably - but it is what it is. And think about what the savers were doing during that period as well. I know a number of extremely conservative (that is, prudent spenders throughout their lives) elderly who lost much of their savings in the recent finance coy fiasco here in NZ. The last kind of folks who I would have thought would leave the safety of a bank deposit. The type of people who had never thought of their surplus as an 'investment; rather as merely 'savings', up until then. I think they were quite typical of the many making up the billion+ lost.
When I asked them why - given TDs were paying rates in excess of 6% at the time - they moved money into these other vehicles, the response was that banks no longer 'cared' about them. They no longer knew their local branch manager at the bank and everyone (in many cases their children included) suggested they "deserved" higher returns.
Many also 'loaned' their children money for housing deposits or business expansion during this time as well. Again, totally irrational given the earnings on savings well exceeded the rate of consumption-type (as opposed to asset) inflation at the time.
It seems to me that our models/notions about 'what' capitalism is and how it 'works' is based on the analysis of rational behaviour - for example, an expectation that people will think about matters such as the interest on their savings relative to the rate of inflation - and act (seek higher risk for greater returns) accordingly. I think the rational man theory works in terms of price discovery - but beyond that .. not sure.
Additionally, population demographics have changed quite substantially during this century - those who have had the luxury of time to become net savers are 'spooked' - although inflation is relatively low - the perceived threat of forward hyperinflation of commodity products (due to resource constraints, combined with ZIRP/NIRP effects) is high. Additionally, I see an emerging disconnect between wage inflation and commodity inflation - so alot of net savers I believe are also thinking about their current savings being likely needed - not only for themselves to buy the essentials - but for their working-age (or soon to be working age) children and their families.
And on this thought;
Its politically expedient for politicians and their economic consultants to allow tales of crisis and doom to pervade the media and public discource.
It seems to imply that you think much of the pervasive 'crisis and doom' discourse is "spin" - that is, a means to legitimate "austerity" measures. I agree, but only in the sense that it serves to legitimate their version of "austerity" - meaning the withdrawl of the state from the areas/activities that suit the corporatist agenda.
Do we need however to raise awareness in the general population with respect to the nedd for transformational change? I think yes. So far the only proposal regarding such transformational change that I have seen that offers any promise is Gareth Morgan's Big Kahuna. I'd be interested in your perspective on its mertis, or otherwise.
"Ironic, yes, - irrational, probably - but it is what it is. And think about what the savers were doing during that period as well. I know a number of extremely conservative (that is, prudent spenders throughout their lives) elderly who lost much of their savings in the recent finance coy fiasco here in NZ. The last kind of folks who I would have thought would leave the safety of a bank deposit."
I too know many people who have lost a life's worth of savings due to the failure of the financial sector. I know one person who spread his savings between at least four companies and still just about lost the lot. Raf Manji who periodically posts here told me he had warned the Securities Commission about the riskiness of the finance companies before 2007, but was fobbed off. I'm frankly disgusted at the lack of scrutiny and monitoring of the sector before its ignoble collapse. Frankly its probably related to the slavish devotion to the rational actor theory that pervades the economics and policy making profession. I think its partially to the the fact that when given the choice of being perceived whether internally or externally, as rational or irration in our thinking people would prefer to be thought of as rational. For most of us history I think it wouldn't have occured to people whether they were rational or not. But with the ever increasing complexity of our societies, a segment of the population has evolved that feels a responsibility to think, assess, plan, and make judgements that affect the lives of tremendous numbers of people. It is these people who particularly feel the pressure of being thought as "rational". The true meaning of rational, just means thinking in a balanced way, thinking in proportion to the relative factors under consideration.
The fact is due a variety of emotional hangups its very difficult to think "rationally" or proportionally", which is why the Philosophes, such as Descartes called for impersonal, dispassionate analysis, though in my thinking this expectation is more idealistic and aspiration, rather than realistic and practical. There was also a religious and political considerations that influences the rationalist world view. After all our emotions and passions, are an essential element of what it means to be human, denying our emotions is a fundamental futile if not counterproductive exercise.
Although his rejection of teleology would seem to incline towards a world-machine paradigm, Boyle (along with his fellow latitudinarians, Wilkins and Glanvill) was concerned that God not be denied access to intervention in the material world as He had been by the Cartesians and Hobbists. Boyle nevertheless recognized (after Mersenne) the value of mechanical explanations of natural processes for overcoming the threat of popular pantheistic atheism "by preserving the proper distinction between rational humanity and stupid matter" (Jacob V,27). Although not a strict mechanicalist, Boyle’s God acted upon the world from without, rather than within.
Anarkist - so, did you read The Big Kahuna - and what did you think about the proposal as a way forward?
The authors point out in the book that where the discipline of economics went wrong is at that point in time when it divorced itself from its Enlightenment origin in the philosophical bases of ethics/morality.
But I'm not interested so much in your opinion of the philosophical merits of the work - rather the social merits of the practical proposal/solution put forward in terms of transformational change. Of course the principle argument put forward is that a restructure of tax and welfare under the proposal would produce a more equitable society.
hey Kate,
Sorry for taking so long to reply, my internet access had become more erratic lately.
No I have yet to read Gareth Morgan's book, but I am familiar with the general policy platform, which has a striking resemblence to a policy proposal which I contributed to, whilst working as a research assistant for Raf Manji at the Sustento Institute.
http://sustento.org.nz/wp-content/uploads/2007/05/Guaranteed-Minimum-Income-For-NZ.pdf
I'm particularly enamoured with the unconditional, universal principle underpinning the Universal Basic Income element of the platform. Its important, because it would mean that those who are now perceived as dependant on State support, would no longer be stigmatised or marganalized, because everyone then would be receiving government support. It would also free the government of the tremendous fiscal burden of all the administrative apparatus necessary to ensure access to income transfers provided for by the elaborate network of poverty relief programmes. Furthermore it would also avoid the high effective marginal tax rates associated with the high abatement rates as people on benefits move into part-time work, and transition into the full time workforce with the added costs of childcare, transportation, and a reduction in accomodation supplements.
The main objections to the Big Kahuna reforms, will be the Puritan moralism invective that permeated the rhetoric which was used to denounce the poor relief provisions of the early Poor Laws, under the Speenhamland system, which prevailed before the introduction of the New Poor Laws in 1834. Its striking to note the resemblence between the arguments used in the last 30 years against the modern social security system and those turned against the Poor Laws fully 200 years ago.
"Poor relief, by ending the scarcity that is endemic to nature in its untouched state, destroys both the incentive to work in order to eat as well as those to control childbirth and thus leads to a precipitous decline in productivity and a rapid growth of the pauper populations. The only way to return the poor to their natural state of self-discipline in both work and procreation is to abolish the system of poor relief and return to the natural state of scarcity and the human discipline it teaches....In subsequent years, as political economy gained the privileged status of a recognized science, this story was repeated so frequently by political economists, the clergy, and various Parliamentary commissions that it gained the quality of truth...But even after years of detailed scholarly work had effectively debunked the Speenhamland legend, contemporary social welfare theorists were successful in mobilizing precisely the same story line to discredit current welfare institutions. Charles Murray’s influential 1984 book, Losing Ground, simply updated the old story to argue that an excessively generous welfare system in the United States had undermined both the work ethic and sexual restraint among the poor. 13"
http://www.learnings.citizensincome.ca/speenhamland_long.pdf
I don't expect the beauracrats within the government social security apparatus will appreciate being done out of a job either.
Thanks! Spot on.
Never read Losing Ground - can't imagine I'd want to - but can recommend Putnam's Bowling Alone;
http://beyondintractability.colorado.edu/booksummary/10670/
Kate, that is quite possibly the most insightful comment I've seen from you on this site. You absolutely nailed the issue, which is that artificially low interest rates are preventing the necessary rebuilding and realignment of the capital structure that was distorted by artificially low interest rates in the first place.
As you said, low interest rates are making capital preservation the priority and people are investing in govt bonds etc rather than genuine, wealth-producing assets. This sort of economic dislocation is inevitable as long as interest rates are decided by a man in a suit rather than by supply and demand.
Frankly I cant see any sense here, I think you are talking total rubbish. Its the risk of a depression, deflation and losses thats making capital preservation a priority. Indeed Ive seen some arguments that "wise" money is betting on a depression and severe deflation because they expect to come out of US bonds etc and buy at firesale prices and make a killing.
Indeed low interest rates just mean you can borrow other ppls capital at very low rates and if your project is even 1/2 way decent on return you will make money, if that isnt an incentive to get out and do it I odnt know what is. The other sie is if you have capitla leaving it in the bank makes you no money, again you want to go out and invest...
regards
Not spending, well I think its fear....uncertainty of jobs and prospects is making ppl cautious. All that is left in this circumstance is for Govn to spend on one off projects to keep the country from going cold turkey.
Most businesses borrow to start a business or expand it and dont have capital to put in. They simply dont have it, so your argument might be valid for a tiny minority but not for most IMHO.
regards
All that is left in this circumstance is for Govn to spend on one off projects to keep the country from going cold turkey.
No, no, no, no, no, no, no.
Because they will spend on yesterday-orientated infrastructure - as that is what their mates have geared up to build.
Bernard,
This austerity theme has been the central to this government...
..
It also seemed to make sense given the government had been on a real spending spree in the years before the 2011 election. Luckily for the economy, the government spent an extra NZ$7.2 billion in the last two years.
...
If we back up a bit.
There was a housing boom due to the private sector taking on too much debt.
The private sector stopped taking on debt and started to delerage.
In steps the government to take over the role of "borrow and spend"
Have you had a look at just how much the first statement about the austerity theme (the words the government spoke) clashes with the actions up to now?
The National government, and as Andrewj points out, the local councils, while they may be paying lip service to austerity, appear to be borrowing and spending like drunken sailors.
You continue with
The government is carrying through on its promise to run 'zero' budgets over the next couple of years.
I will believe it when it actually happens. National have been playing the prudent economic manager card for some time. Yeah....right
In general, the way Kate has called out that this article is a load of tripe says it much better than I can.
As a consumer trying to help the NZ economy, I bought a smart phone this weekend. I hope it helps to unblock the logjam in the economy. As I was driving home, I did notice people out in the streets again smiling, wallets in hand, sold signs outside houses, and a general spring $$ in the air. Yep, think that did it.
Then again, maybe my $$$ went straight into the hands of the global finance company scooping all HP in NZ, then into the Aussie department store profits.
OK - I pledge to renew my efforts for fast & furious debt repayment. Must repay all debt. Must repay mortgage in 7 years.
I assume that by HP, you mean Hire Purchase.
If so, then I can't see your point in grizzling about global finance companies.
If you had paid cash, or waited until you had the cash, for this latest smartphone, then you wouldn't be feeding the industry you complain about.
Did you need that new smartphone, or just want it?
Yes, Moa Man. It was a want. Actually by my wife. And I choose to live in peace.
While I could have paid cash, I decided that it would be better ude that cash to pay down other interest-bearing debt, while using interest-free terms. Yes, I know that temporarily increases actual debt levels, but it does smooth out cashflow while still paying down debt more efficiantly overall.
Well, it sounded ratrional at the time.... There is also the reality of needing to keep up with technology & modern times for workplace engagement & client support of course. Ha ha - post-purchase rationalisation!
Anyway, the point was/is that if every Kiwi went out and spent some money on cars, houses, laptops, DIY etc then maybe we could get a stimulus effect.
Maybe too many Doomsayers spreading doomsday negativity - too much 'saving'? Too much fear? Which further depresses the economy.
If the whole world is going down the gurgler economically regardless, why not go down with a hiss & a roar...?
OK - so publish a list of all 'approved' spending. Ha ha. Is anything made in NZ anymore?
What constitutes helpful consumer spending? What constitutes meaningful 'productive' business activity? One could argue that getting people out of the house, playing, working, spending, trading, etc without undue fear will actually be helpful to an economy....
A list of approved spending?
This might help MB. A response to the same Hickey article in the Herald.
"when people save they do it for a variety of reasons.
The paradox of thrift does not apply:
-If an individual saves they will increase their wealth;
-If the entire nation saves, there is no effect on national income provided savings are channeled through the financial *system* into new capital investment.
-All that then happens is less consumer goods but more capital goods are produced - spending as a whole does not fall.
-Production, as a result, will also not fall.
Keep in mind:
-Savings channeled into new capital investment actually boost growth"
Borrowing and spending on a productive asset can be a sensible thing, sometimes, surprisingly, even when governments do it. A big project like the Manapouri project comes to mind.
But that's not we've been doing. It's plain as day we've been borrowing to consume. And we've been at it for forty years, hence our persistant current account deficit and high level of foreign ownership of our debts and assets. The recent Government fiscal deficits are the result of more of the same failed thinking - borrowing to pay the grocers bill. Not a path to wealth - never has been and never will be.
So we are in the unenviable position of HAVING to borrow (or sell assets) to pay the interest bill. A debt trap IOW. The answer? More borrowing and spending - complete and utter nonsense.
"Savings channeled into new capital investment actually boost growth"
Borrowing and spending on a productive asset can be a sensible thing, sometimes, surprisingly, even when governments do it. A big project like the Manapouri project comes to mind.
But thats not how the financial system works. It a simple elegant metaphor, but its not descriptive of the financial system as it exists. Savings are not a pool of savings from which banks issue loans for entreprenuers to invest in capital, but instead its just an accounting entry, which signifies that a saver is willing to forego consumption now for the opportunity to consume in the future and is rewarded via interest payments from a borrower. Loans come first and then deposits are used retrospectively to offset the accounting entry so as to steralize the loan. Without it the money supply would grow uncontrollably. Its what the English banker Fullarton called the law of reflux, in the bullion debates when the Banking School developed the "real bills doctrine".
I was thinking that the government should mandate that any consumer electronics entering NZ should be packaged in a Kiwi made cardboard box , from sustainable Kiwi timber pulp ......
..... and then I thought , " steady on Gummy , that'll double the retail price of our LCD tellys and SmartPhones " .......
Mortgage Belt typifies the mass-delusion.
The belief that money is the driver, and that 'getting the economy going' just needs more money turning over faster.
Sorry MB, but your new toy can be classified as 'bits of a finite planet, including some pretty scarce bits".
To increase activity in real terms, you need to increase the consumption of 'bits of the planet', which needs underwritten by real stuff. The rest is virtual, bubble or wish-list-which-has-no-guarantee-of-underwrte.
We certainly can't 'double from here, and probably can only manage a very temporary 'blip' above where we currently are, before we go through a long descent.
I know, I know, I'm such a bad person. I will have to bow to the Global Gaia (spell?) & ask for mercy 3x for having the absolute consumerist audacity to buy an imported toy.
Yep, must return to re-building my underground home with solar panels, grow more chooks, pump tyres of my commuting bike (actually true this one), fine-tune my radioactive-resistance electronics box which resists a thermo-nuclear attack.
Money? No forget it - I'm returning to barter & green dollars. This will purify my soul - & resist the socialist tax grab (otherwise known as 'global warming')
I Stand corrected PDK. Will Breathe short intakes & shorter carbon dioxide exhalations....
Mind you the Galaxy S3 is an amazing device of human ingenuity & compilation of earth-resources! You gotta grudgingly admit it PDK.
GBH, panels are on the roof, fflush with the grass surface. Trouble is the kids (who believe they reliving Anne Franks Diaries) think the roof will cave in cos of GFC2 or EuroCrisis or marauding starving Nazis.... survivalism will triumph. Got the book & movie rights....
Ah ! ....... my mass delusion , then ...... I've been wondering what will happen when we've had so many shortages of one sort or another ,... will we suffer a shortage of shortages ? Can we reach peak " Peak " ....
..... will Mr PDK have to get a job , finally ..... 'cos there's nothing more for him to blog about ?
If " survivalism " means hanging out with freak-units 'like those folk on the reality TV Survivor shows , do we really think it's worth the effort to save the human race ?
GBH - smell the fear....
I don't advocate survivalism - but watching the stupid chew-into-finite-resources-at-an-exponentially-increasing-rate, relying on 'we haven't run out so far, so therefore we won't', a thinking person would have to position themselves to abe to best handle what has to happen.
Ideally, we'd have had the informed societal debate, limited population voluntarily (as many of my kind did) and agreed to live within precautionary parameters.
That means that with big-lead-time things like Climate Change, you do the precautionary thing, until it's proven not to be needed. A mature society would have weaned itself off fossil fuels, knowing that if they were later proven safe, they would still be there to be used.
Short-term selfishness, the free market / tragedy of the commons, combine to suggest we don't get there. Indeed, thinking (?) you can rely on technical advances to displace physical depletion, is guaranteed to not get us there. Do you always compare apples with lunar modules?
PDK used to whitter on about Gaussian Curves too ..... they may have run out already ....... or have the curves been straightened ?
...... apparently there's a worldwide limit on Kakapo molecules , too ...... I sit up at night , booming a sad refrain ...... " Peak Kakapo " ....... ( meebee they ate the Gaussian Curves ....... Kakapos are gutsy little buggers ) ......
Such a bloody big universe , limited only by so few atoms ...... forgive us , Global Gaia ...
( my Filippino cobbers say the Gallopsy S3 is an amazing product : they won't go near an Apple , overpriced , under app'd junk ....... Viva Samsung ! )
Mortgage-Belt - you do realise that there will be folk reading - with intelligence - what you post here?
Those houses are spaced that way, for one reason, and one reason only; the vast amount of easily-gotten energy that fuels BigAg. It simply allows few people to do a lot of work.
You conveniently ignore the fact that the paddocks are wall-to-wall. The paddocks being the activity of farming, not the houses. Was it purposely done, or cognitive dissonance, or need to self-delude?
It would be interesting of Mortgage Belt to get out a bit more, perhaps take a trip up the Whanganui River to the bridge to nowhere. All the soldiers that were given land to break in up the river went broke because during the depression it cost them more to trasport the stock on the boat to town than the stock were worth. Lessons easily forgotten.
Gummy, PDK hit peak work in 1986 and has hardly worked a day since.
Proud of his inactivism he is and showed astonishing cranial superiority by boasting about it on interest.co.
Has WINZ stopped his benefit, or can't they find him on his super yacht??
Mortgagebelt has the gall to actually buy a phone - now the world will really end - I was given mine, so I'm OK, OK?
;-)
Prima facie failure to assess.
In this case, the meaning of 'work'.
If you mean physical, I probably have never worked harder. That's real work, after all.
If you mean 'income earning', (which doesn't necessarily include real work), then yes, I peaked in the mid-eighties. Knew by then, that it was a one-way global trip to nowhere.
I don't soak off others, though. No benefit, no WFF, not even bothered claiming claimable tax rebates. Life's too short, the bucket list is too long. You point about using - or not - existing items, is a valid debate. Recycling (or delivering Superyachts) depends on someone else having bought the new. Are we supporting the new, by recycling/using the existing? Welcome to the Tragedy of the Commons.
Alice Huisman, CEO of Royal Dutch Huisman, says "we....believe that our objectives must embrace an extra dimension - energy efficiency, conservation and sustainability. We cannot pretend that a superyacht (or a luxury car or aircraft, for that matter) can ever, inherently be 'green'. However...a sailing yacht will have an environmental impact, and our best efforts should always be about reducing it".
She's ahead of one or two, cranially......
Sorry OMG , I can see how you made that interpretation, but it was a double edged comment, I just felt it was getting a bit personal is all.....
Shame a lotta really smart people come here , they don't all agree, or see eye to eye, but we're all just bloggers at the end of it.....so we got that in common at least....it's somewhere to start from ........I guess.
Always remember wer'e here to assure David C of a worthy product to sell ads on....Good on you David , the stuff of Genius.
Not to worry Count, steven is right you most certainly are an honourable, knowlegeable and respected poster.
I have taken a lot of absurd abuse from PDK and steven from day one for not joining their warmy club, and that's been an underlying theme. Recently returned from a week in OZ, very cold in Melbourne but a nice day here in HK,so going for a swim at Stanley later,
http://meta.wikimedia.org/wiki/File:HK_StanleyMainBeach.JPG
Cheers,
OMG
OMG should read up on the tragedy of the commons.
And find out whether things are true, before making statements. (this may explaing the cimate denial, though...)
We actually own the land with the worst slip on SH1, that I know of. We planted the trees which suck the lubricating water out, slowing the slip and saving tha taxpayer massive remedial costs. Ironically, it was a tax-paying farming operation before us, which exascerbated the problem... We don't charge for that service - but it shows there are more ways than tax, to achieve a communal benefit.
Schools - I'm there voluntarily, several hours a week. No charge, and often (as with today/tmrw) I'll be donating materials to make it happen.
Hospitals? Now, is a regime which guarantees the annihilation of more than 50% of the global population within my expected lifetime (there's a piece of Boolian algebra if ever ther was one) worth supporting just because a life-supporting service is part of the mix?
And self-indulgent suggests selfishness. I suggest that those who consume and pollute, are the selfish ones. I attempt to be as minimal in both regards as I can. And no, I've argued here for a long time, that there won't be pensions in the near future - at all. So I don't expect to be in line for one. Raising the age to 67 is so small, so futile, so late (and won't happen anyway) that uo just have to shake your head. Crossnan ws a wasted space - never looked at the big picture.
Come on Bernard, National and the councils have been spending pretty freely. Look at the nice new shiny Rugby Stadia up and down the country. Also there are plans to knock down perfectly good new buildings in CHCh for a convention stadia, or is it a conference park, I get confused. Really, really important stuff like that.
When we stop borrowing like addicts the exchange rate will fall. Suddenly a strange new phenomenon will arise - productive enterprise will make something called a profit. Many people may have forgotten what that is, or what it is for.
Thanks Bernard. Keep up the good work. I read a rather long but rather fascinating paper over the weekend about the unintended consequences of easy money.
http://dallasfed.org/assets/documents/institute/wpapers/2012/0126.pdf
The author's summary seemed to be that it works in an emergency but leads to a heap of trouble if you keep doing it. He deals with a lot of issues in a clear way, examing the arguments and evidence for and against each effect.
For example:
"Given its global incidence and secular character, rising income inequality is likely deeply rooted in technological change and globalization, both of which threaten the less well educated. Nevertheless, it is also worth asking whether, to some degree, this might be another
unintended consequence of ultra easy monetary policy. Not only has the share of wages (in
total factor income) been declining in many countries, but the rising profit share has been
increasingly driven by the financial sector. It seems to defy common sense that at one point 40
percent of all US corporate profits (value added?) came from this single source."
Councils of course dont have that option....directly....and most, all? have substantial debt...So the Q is where is it (the baliout0 going to come from, the options are Central govn handouts, or raiding savings such as the Cullen fund and Kiwisaver accounts...or default...
regards
De-leveraging is fun for only so long.
Then the consumer feels like breaking out with some ... shock. horror .... spending.
Yep - spend cash, zip the credit card, topup the mortgage, travel, have a holiday. buy some nice food. Leave the consequences for further down the road.
Agreed (on behavior), however eventually its payback time.....or go bankrupt time. 4 years into this and no sign of recovery or even light at the end of the tunnel....or maybe that light is a decade off, maybe 2.
Just how many families I wonder have been surviving using their CC? expecting better times? At some point its maxed out and the bank wont give you any more. When that happens its default time, 1 or 2 or 10 per 1000 defaulting well OK, no biggee. When you start to look at 20 or 50 per 1000 you have a big problem running away from you.
Certainly we've seen similar comments from others.....and just look at Greece right now...they are looking at decades of payback....I just cant see it.....
Of course then there are the ppl with no CC or have had it taken off them.....
regards
Bernard : Would it be such a bad thing if we got our finances in order , balanced our books , and stopped buying so much junk made in China and marketed by shiney suited Yanks ?
....... and told the government to stop the election year charade of offering us " entitlements " , the vote bribes , sourced from our own frigging money .....
Gummy
I'm sympathetic to the Austrian impulse to just stop the madness and let the chips fall where they will.
The problem is the generation that would be wiped out by that. And all the social/political grief that would follow.
We have to manage our way out somehow.
And I'd much prefer we did it peacefully than have to engineer a war to 'create the need' for government spending.
cheers
Bernard
Bernard : Neither the Austrian " que sera , sera " model , nor the Australian's slavish " China is our God & saviour " model will work for NZ .....
....... at times of maximum pessimism , we need to be bold .... now is the time for some chutzpah , a degree of boldness ....
Unfurl a brave new education policy , pile into R&D , get the apprenticeship schemes running 100 % , strip away the low grade welfare policies ....... re-balance NZ Inc towards being a leaner , smarter , more entertaining place to live , trade , & to visit .....
GBH - We most certainly need to pile into R & D big time. China doesn't actually invent many goods etc they just reproduce what has been invented by some other countries.
Productivity is low in NZ and I put this down to the constant interferance by increasing compliance issues across everything business.
http://www.treasury.govt.nz/publications/research-policy/tprp/08-02/03…
Workers get screwed with lower wages as the inputs to outputs has very little profit margin.
If the compliance costs were stripped away margins on profit would be significantly higher.
The tax system creates obvious distortionary affects on borrowings within business. It is better to leverage off any gain in improvements on the overall Capital position than to pay the taxes if a debt reduction programme is undertaken.
Private housing debt completely distorts the market and home values mainly have no relevevance to cost of production or income able to be generated. I put this down to many people having poor knowledge of investing and also the Councils have added to this issue with locked-up land supply policies.
Our population and economy is starting to look like an egg timer. The fat part at the bottom of the timer is made up of Govt and its Agencies the middle narrow section is those who work in Private Enterprise and the other fat end is all those people who receive handouts of some description whether it be unemployed benefits, superannuitants, WFF recipients and any other benefit types.
The middle section of the egg timer needs to inflate and private enterprise needs to expand rapidly. The trouble is that many offshore companies are also sucking good income from out of the system and they repatriate these profits.
NZ and ironically Australia are right down with the PIIGS countries when it comes to Net International Investment Position (NIIP) as a percentage of GDP.
Source IMF
Graph as in article and shared within rules of Port Phillip Publishing Pty Ltd. http://www.dailyreckoning.com.au/3-ways-to-profit-from-australias-comin…
{Edit} Graph comes up on my screen but wont publish - you will have to follow link.
NZ has an enormous amount of debt which is unproductive (housing debt) it is not earning or producing anything of value. It continually takes productive money out of the economy and when the banks have made their profit this is repatrated mainly to Australia.
NZ Agriculture is often blamed for its high debts but this has to be a smoke screen as at least this debt is producing export receipts back to the country. It is debt that is working extremely hard.
NZ needs more debt that can produce export receipts and less unproductive debt which ends up having the profit margin repatriated out.
Bernard - the 'savings' and the 'investment' of the BB generation (I presume that is the one you mean) were always proportioately doomed. Caveat emptor; the knowledge that this would be so, has been in the public arena for 40 years.
Managing our way out? Physically, we can - but I'm guessing you mean fiscally. Wrong driver.
And we won't 'engineer' a war, and it won't be to 'create need for (anyones) spending.
We'll have one though - over what's left of the essential resources. Winner has any debt wiped anyway, loser is in resource poverty with Weimar chance of improvemenrt, if still alive.
Letting current debt go to bankruptcy, then re-booting, won't solve the physical underwrite issue. Even Daly's 'Steady State' wouldn't make the descent easy. The only fitting fisacal system would be related to an essential element of activity; energy is the obvious one, but the effort needed () to audit would be too great.
I think there are going to be a lot of mad ppl....
its going ot be interesting watching the Pollies try and deal with the un-rest. Just how they will palm off the blame...and Im sure they will try. The G7 expecting the IEA to sort oil supply/prices is just one example....
regards
Me too Big B....I'm a fan of lets just get this done and move right along, however , you stop short at promoting what type of regulatory intervention is required in a new beginning,ensuring a no repeat of Sub Prime and GFC hotbeds where unscrupuluos Banking Financiers and the like ran amok,unhindered by regulations that were in place because they had far too much legal muscle , money muscle for the enforcers to dare act.
While it might solve your Boomer fixation unfortunatley it will not transfer wealth to a generation in need of new beginings, instead it will dissapear into the abyss that is deleveraging.
Add to this that in environments , such as depression , or more correctly the verge of , the ground is ripe with carrion for the buzzards to pick over at a lesiurely pace, reinforcing their instinct that predation of the weak is a best practice behavior .In other words , how beyond regulation moreover.... the will to enforce it,...... can free markets be allowed to flourish while those very freedoms are open to interpretation ,abuse and corruption....ad nauseum.
Something to ponder...?....the chain to break ,is one of elitist thinking and all those millions upon millions that wanna be's...... and just what they will do......... to be.
Christov -
"it will not transfer wealth to a generation in need of new beginings, instead it will dissapear into the abyss that is deleveraging".
Doesn't make sense - if it didn't exist, it wasn't wealth. That's exactly the 'borrow and then spend it' problem. The problem is the mass disillusion which has to come; that goes for every generation.
You last part is right though - the scum always floats to the surface. BH pointed out what the US banks were planning on doing to the bottom-end - hoovering-up what is left in dregsville. We are seeing it here with asset sales, and the accomodation (landlord) supplement. Globally, the poor, in the end, are bidding with their lives. The irony is that even as they drop out of the bidding, they were outbid by unrepayable debt......
I think we agree PDK on the notion of actual wealth or (cashed up) if you like , but my statement stands in that the perception by many GEN X of leveraged boomer wealth is exactly that ,a perception.....bound for the abyss, it will not transfer to become a realisation.....poof !
I would add that a number of the Boomer generation will forego actual wealth to underwrite their offspings positions at such a time .......poof..!
Perhaps the inference was a little unclear...my apologies.
Christov - cheers, not it wasn't unclear. The interesting point is that only those BBers with something left, will be able to 'pass it on'.
I do it by volunteering - will be schoolkids construction skills today and tmrw. Must admit to using the car to shift the cement and sand, though, although my one-wheel bike trailer could carry the load. BB it all......gettn old. :)
Jeremy Warner at the Telegraph: "In any case, if demand is not responding to QE, then the problem may not be one of demand at all. There is, regrettably, a much more uncomfortable conclusion to be drawn. In a recent article, Raghuram Rajan, a former chief economist at the IMF, articulated what I have long found the most compelling way of looking at the economic crisis. For decades, he wrote, advanced economies were losing their ability to grow by making useful things. But they needed to somehow replace the jobs that had been lost to technology and foreign competition, and to pay for vote-winning entitlements. So to pump up growth, governments spent more than they could afford and promoted easy credit to get households to do the same. Predictably, this proved unsustainable. Without politically painful supply-side reform to correct these failings, we can look forward to years of stagnation or worse. Central banks may have succeeded in preventing a repeat of the Great Depression, but they cannot correct these underlying deficiencies. To think they can somehow magic away all our problems is to descend into the fantasies of the past." Agree with that. Another way to look at it: It's not the low growth/high unemployment situation we are experiencing that's the anomaly, that description applys to the multi decade credit/debt boom.
steven,
I don't think the author is talking about supply side monetary or fiscal policies, but rather production policy settings. The consequences current skewed imbalance in production between East and West, has been something that the radical Left and the paleoconservative Right have been warning of since the beginnings of outsourcing of Western production that began in the wake of NAFTA. They were both smugly dismissed by the moderate Left and Right who have become all but indistinguishable and could only see the benefits of the resulting wage arbitrage and the effect that it would have in blunting rises in inflation that would otherwise reduce the standard of living of their restive populations. They had unquestioned faith in the ability of the miracle of finance to allow people a way of life that was incompatible with their actual earning capacity of the public. It worked incredibly well until it didn't.
The Great Moderation was the Western equivalent of Rome's Bread and Circuses. Distract them from fundamental structural problems with cheap entertainment, whilst you ready more direct methods of control which you can employ when the current way of placating the masses no longer works. Our elites are on the backfoot on this, but their currently following the lead of the U.S. and Europe with their introduction of reforms to the Police Act and the introduction of the Anti Terror laws. We live in interest times.
Justin Case we lose sight of the un-gloomsterisating world , Bernard ...... technology & innovation are continuing , unchecked by the GFC ...... in medicine , there have been some jaw-dropping breakthroughs announced in recent months , giving hope to the blind , the paralysed , and breast-cancer sufferers .....
...... and as such , the Johnny & the Gnats would be well advised to reduce the seriously dopey middleclass welfare shite , such as WFF & interest-free-loans ...... and channel that money into the school system , into medical , scientific & agricultural research .......
Despite the best efforts of central bankers , bankers generally , and real estate agents ..... the world actually isn't getting dumber , NZ has gotta position itself to ride the technology curve ...... that boom is still roaring ahead , unabated .....
I think we need to think more about Keynes and the Great depression. Back then Keynes was the heratic, he claimed that making Germany liable for war debt would destabalise Europe, that the gold standard was causing debt deflation and unemployment.
History proved him right. The countries that left the gold standard and used monetary policy to increase government investment in the economy recovered first. This included New Zealand. It is in that context Keynes theories should be judged not the stagflation of the 70s that occurred after he died.
It seems to me the current world situation is similar to the 20's and 30's than the 70's. That the private borrowing being forced on to governments in periphery Europe is like the war debt. And the Euro is like the gold standard. Austerity economics just contines this system to the rest of the world.
Steven Keen the economists also has some interesting thoughts on how ever rising private debt is the problem and is worth a google.
"I think we need to think more about Keynes and the Great depression. Back then Keynes was the heratic, he claimed that making Germany liable for war debt would destabalise Europe, that the gold standard was causing debt deflation and unemployment."
Well the monetary thinking of Keynes can't be argued as revolutionary, because they formed the basis of the British monetary policy which dated back to the late 1860s and the work of Walter Bagehot. His thinking which he shared in his influential book, Lombard Street, became all but orthodoxy and the basis of the Bank of England's policy. formulation.
The American economist Brad de Long, explains why the failure of the Western world's monetary policy establishment failed to apply the precepts laid down by Bagehot. He lays it at the feet of what he calls the "rising tide of Austrian" economic theory, but I disagree. I think the incoherent Austrian monetary theory then, as it does now, languished at the margins of economic discource and its sole useful purpose was to provide a veneer of intellectual legitamacy to the current social order, just as Hebert Spencer's "Social Darwanism" did in its day. Instead I think the economic problems that beset Europe and the United States were just too insurmountable. Bank failures in Europe and the contangion which spread to the United States and the consequential freeze in the circulation of liquidity and the eventual drainage of the money supply were just symptoms of fundamental imbalances within the capitalist economy of the time, just as it is today.
The argument of the like of Brad de Long and is ilk that the Great Depression occured, because they allege Herbert's government failed to respond adequately to the immediate crisis, which is laregly baseless. In their eagerness to credit the end of the Great Depression to their hero F.D.R and his "New Deal", the "progressive" policy makers and political economist, do an injustice to the legacy and work of Herbert Hoover in the lead up to the Great Depression when they lay the blame for the crisis on his apparent inaction. Hoover is responsible for a degree of assistance to the public and intervention into the economy that was unparalled in degree. Roosevelt made his name in his election campaign on a platform where he railed against the very policies which he would claim as his own once he came into power.
Many of his policies were actually counterproductive. Corporate cartels, price fixing, trade tariffs, etc. In fact if not for the World War II, the United States' economy very likely would not have recovered to the degree that it did, given it fostered a massive demand for manufactured goods, labour, and foodstuffs. Not to mention it was pivotal in fostering research into areas of technology that initially began as solutions to military needs, radar, electronics, computers, large passenger aircraft etc. The world would be a very different place should World War II not have happened.
The fact is both Europe and America were saturated with produce from its mass production economy, which was hobbled by the one eyed Puritan insistence that company revenues would be better invested in capital expansion and financial speculation than on disbursing spending power to the workers. Progressive industrialists like Henry Ford and the Filene Brothers recognised that for capitalist profits to be guaranteed, workers must be provided with an adequate amount of spending power to consume the goods that the mass production system produces.
“I am not contending, of course,” Filene wrote, “that this was the only cause of the business depression of 1930-31. But it is obvious that mass production demands mass buying of goods; and that if the masses of wage-earners gamble in stocks instead of buying the things which they want, they gamble not merely with their savings but with their jobs.”
http://www.salon.com/2010/10/05/lind_america_plutonomy/
Humanity has squandered the possible rewards of the mass production because of this pernicious, backward Puritan morality. Nothing exemplifies the thinking more than the words of John E. Edgerton, president of the National Association of Manufacturers,
“I am for everything that will make work happier but against everything that will further subordinate its importance. The emphasis should be put on work—more work and better work.” “Nothing,” he claimed, “breeds radicalism more than unhappiness unless it is leisure.”
http://www.orionmagazine.org/index.php/articles/article/2962/
If we had taken the action of casting off the burdensome chains of this archaic morality, the world could have been in a much better state, but instead, we quibble over irrelevancies like "sound money" versus fiat currency, profit ratio, government expenditure, council rates, mortgage debt, Metropolitan Urban Limits, government debt, exchange rates etc. I guess its alot easier to argue over side issues rather than work together on discussing fundamental issues like morality. One can't strike a nerve, quite as directly as when one questions another's concept of morality. But people need to be called out on it, otherwise we're screwed. It'll be a return to the Victorian Age and the workhouse for many. Its already happening in Britain.
Excellent, I usually enjoy your posts, I may not agree but there is substance to think on....
In terms of Hoover its hard to see that he was anything but a disaster,
http://krugman.blogs.nytimes.com/2011/07/18/herbert-hoover-was-hooveres…
Cartels etc, well corporations like certainty....I guess its the lesser of 2 evils given the dire situation.
Also I think the USA was recovering quite well until 1936 when FDR was persuaded to stop stimulus and that was an oops....but I'll go research that if I have time today.
regards
Steven,
Krugman is of Brad de Long's ilk, though worse in that he makes a load of unsubstantiated assertions and refuses to answer calls to back them up. He should stick to his knitting, which is trade policy. He's just a hack otherwise. I used to have alot of respect for the man, but thats eroded over time. This showed through in his early arguments with Brad De Long about the Economic Crisis and recently with Steven Keen on the banking system. Alot of people have lost faith in Krugman after his latest skirmish with Keen. You'd do better to do the same.
http://krugman.blogs.nytimes.com/2012/04/02/oh-my-steve-keen-edition/
I on the otherhand don't make unsubstated claims.
"I have instituted … systematic … cooperation with business … that wages and therefore earning power shall not be reduced and that a special effort shall be made to expand construction … a very large degree of individual suffering and unemployment has been prevented." Major business leaders pledged not to lower wages, and to form a permanent national economic council to deal with emergencies.
After the Stock Market crash, the new president ordered federal departments to speed up construction projects, cut $160 million in taxes, and doubled the amount spent on public works. The government itself pledged to increase its public building program from $248,000,000 to $423,000,000.
The Emergency Committee for Employment, created in 1930. was chartered to coordinate efforts between other agencies in order to provide relief for the massive unemployed during the years of the Great Depression.
http://www.alternativeinsight.com/Hoover_and_the_New_Depression.html
Thanks Steven.
I know you respect PK and no one can deny his concern for the people that are suffering.
Reading the exchanges between he and SK I was staggered at his quaint understanding of how modern credit creation works and less than impressed with his rude and ignorant dismissal of SK's work.
He is (was?) a respected economist but seems to think credit growth is restricted by the amount of central bank cash money in the system and that deposits come before loans?
http://www.creditwritedowns.com/2012/04/banks-matter-krugmans-barter-mysticism.html
you did leave yourself open to a bit of leg pulling....
;]
PK v SK, PK was I think out of order on that subject. PK certianly isnt the only economist to go to, but he is thinking and he is demonstrating his logic and thoughts so you (I) can critique it and follow. That sort of thing and also Steve Keen's blog are interesting and readable because of that....I think its really silly to simply follow a political party/ethos and blindly agree with it.....that is not good IMHO.
PK's/Keynes work on liquidity trap I think is the best....if not only demonstratably only successful model / method of getting out of the present hole.
Is/was, I think there is a substantial % of ppl who dont respect him but then never did and never will because of their political blinkers. PK is taking considerable flak for his outing of ryan and romney for their lies and voodoo economics....I guess therefore attacks on his character and ability are only to be expected.
Keep you eyes open and think IMHO.
regards
I mostly agree on PK especially v SK....however his posts contain a lot worth reading, far more than a lot of other so called economists. Brad De long is a good read as well...
Thanks on that Hoover link I will read with interest...and go digging for more...
regards
And in the meantime our much vaunted "SuperCity" which has mananged to lose multi millions of ratepayers funds since its misguided inception - But wait - not content with that debacle , we are now confronted with the news that the Maori "board" has demanded that all Auckland Schools teach Maori as a compulsory subject !!!!
What on earth are these unelected maori trouble makers playing at ?? - It is obvious they will never be satistisfied until we are all kow-towing to them and their stone age beliefs! What is even more galling is the fact that we have to pay for the BS that they and their cringing liberal lackeys spout.
It is way past time to tell them all we are a small country with a seriously struggling economy and we should ALL be working to a common cause rather than trying to entrench apartheid and what was once godzone !!!
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