economic situation is dire

[peterms]

Yes, Spain's austerity programme seems to be doing what you expect austerity programmes to do, deliver austerity. Or in other words, unemployment and poverty.

Oh, and those naughty credit ratings agencies have downgraded the country for following austerity programmes, though they would also apparently have done so for, er, not following austerity programmes. Which just about sums them up.

Czech Republic losing confidence in government's austerity project. As are countries across the continent. And all sorts of individuals, except perhaps the incontinent.

How many more months of this must we suffer before the tories throw the pathetic Osborne from a high window?

[Awol]

Yes, Spain's austerity programme seems to be doing what you expect austerity programmes to do, deliver austerity. Or in other words, unemployment and poverty.

Oh, and those naughty credit ratings agencies have downgraded the country for following austerity programmes, though they would also apparently have done so for, er, not following austerity programmes. Which just about sums them up.

Czech Republic losing confidence in government's austerity project. As are countries across the continent. And all sorts of individuals, except perhaps the incontinent.

How many more months of this must we suffer before the tories throw the pathetic Osborne from a high window?

While I agree wholeheartedly that Osborne is an utter buffoon, the obvious difference is that the countries in the euro zone cannot control the currency they use, unlike the UK. You're comparing apples and oranges there, but if/when the euro zone breaks up it will drag us into a recession so bad that austerity will have to be abandoned anyway. Once the big bust is allowed to happen everyone can then start thinking about a real recovery.

However it is interesting that call me Dave's rejection of the euro zones' proposed Fiscal Union (FU) Treaty is now becoming more mainstream in Europe, with Hollande (if he wins in France) pledging to also reject it and many other countries becoming potential refusniks of the German plan.

Could there be any admissions that maybe Britain's solo stand against the EU plan was right after all?

[peterms]

While I agree wholeheartedly that Osborne is an utter buffoon, the obvious difference is that the countries in the euro zone cannot control the currency they use, unlike the UK. You're comparing apples and oranges there, but if/when the euro zone breaks up it will drag us into a recession so bad that austerity will have to be abandoned anyway. Once the big bust is allowed to happen everyone can then start thinking about a real recovery.

However it is interesting that call me Dave's rejection of the euro zones' proposed Fiscal Union (FU) Treaty is now becoming more mainstream in Europe, with Hollande (if he wins in France) pledging to also reject it and many other countries becoming potential refusniks of the German plan.

Could there be any admissions that maybe Britain's solo stand against the EU plan was right after all?

Yes, they can't control their currency, and that's a very big factor. We on the other hand choose to behave as though we can't control ours.

They have chosen to enter into a madcap scheme to contain deficits to an arbitrary % of GDP. We don't have that constraint - and yet we act as though we did.

Although the Euro was a crazy idea, there's not much to be said for staying free of the limitations it places on your economy but then acting as though those limitations were in place. It makes Osborne's approach even madder than we already know it to be.

[Genie]

More good news for the Midlands from JLR

Jaguar Land Rover to invest £200m in F-Type factory at Castle Bromwich

[Brumerican]

I read yesterday that scientists now believe humans started walking on two feet in order to more easily grab and carry off a larger share of the food. These capitalist apes duly prospered, whilst their socialist brothers went hungry and died out. Like it or not we are all descended from those greedy two footers.

Well they were terrible scientists then because that's not how evolution works at all. :?

It's like saying giraffes grew longer necks in order to reach the higher leaves which simply isn't the case .

If the mutation is advantageous and is selected for by the environmental factors then that mutation will prosper and reproduce . It can't be forced to happen by the genetic organism .

We didn't choose to become bipedal . It happened by chance and proved to be advantageous to the replication of the human genes.

[blandy]

...We didn't choose to become bipedal...

I did I got fed up of crawling around on all fours gurgling, so decided to go all 2 legs. And besides, people said it was unbecoming for a middle aged man to be crawling about like that.

[TrentVilla]

I read yesterday that scientists now believe humans started walking on two feet in order to more easily grab and carry off a larger share of the food. These capitalist apes duly prospered, whilst their socialist brothers went hungry and died out. Like it or not we are all descended from those greedy two footers.

Well they were terrible scientists then because that's not how evolution works at all. :?

It's like saying giraffes grew longer necks in order to reach the higher leaves which simply isn't the case .

If the mutation is advantageous and is selected for by the environmental factors then that mutation will prosper and reproduce . It can't be forced to happen by the genetic organism .

We didn't choose to become bipedal . It happened by chance and proved to be advantageous to the replication of the human genes.

Nah it's down to God

[peterms]

Martin Wolf in the FT discusses why conventional economic theory fails to explain what is happening now, and what to do about it:

...During asset price bubbles and, in particular, property bubbles, credit and debt explode unsustainably. After these bubbles burst, businesses and households are left with what they now believe to be excessive debt. Moreover, the financial system is also damaged by the same process of deleveraging. In this environment, businesses and households seek to run down their debts by trying to ensure that they spend less than their incomes. The result is the threat of a huge contraction in aggregate demand.

If affected economies are to escape deep depressions, they need huge swings either towards current account surpluses or towards fiscal deficits, as vents for the excess desired savings of the private sector. If the government reacts to its deficit by trying to eliminate its deficits too quickly, domestic demand will collapse. This is particularly true for relatively large and closed economies (such as the US or even the UK), which are unable to shift their external balances swiftly, other than via depression-induced collapses in imports...

George? Are you there, George?

[Genie]

JLR are to open a distribution centre in the North West to support the Halewood plant producing Evoque and Freelander. Will create 300 new jobs.

[peterms]

You couldn't make it up.

George Dubya Bush shares his insights into economics and growth.

Next in the series:

How to do brain surgery, by GW Bush (subtitle - Don't Try This At Home Like I Did).

[peterms]

This is hilarious. A moderately intelligent (but not too bright!) venture capitalist, and a thick-as-pigshit tory MP, meet an economist, who tries to be polite while explaining how stupid are their ideas for getting out of the drowning hole their policies have dragged us into.

Needless to say, the tories get utterly stuffed, while not even being aware of the arguments being deployed against them. Their complacent serenity acts as a defence against any intellectual argument. They just know they are right, their utter incapability to demonstrate that is irrelevant.

[meregreen]

This is hilarious. A moderately intelligent (but not too bright!) venture capitalist, and a thick-as-pigshit tory MP, meet an economist, who tries to be polite while explaining how stupid are their ideas for getting out of the drowning hole their policies have dragged us into.

Needless to say, the tories get utterly stuffed, while not even being aware of the arguments being deployed against them. Their complacent serenity acts as a defence against any intellectual argument. They just know they are right, their utter incapability to demonstrate that is irrelevant.

Brilliant. Have to say the economists point about the Tories and their venture capitalist friends using the situation to implement their private sector versus public sector dogma is spot on. They both came over as pretty ignorant of facts.

[peterms]

One of the rare examples of a non-mainstream economist (Steve Keen) getting some exposure on the Beeb, here.

[peterms]

Useful comment by Ha-Joon Chang on austerity, here, and good comment from M White below.

[blandy]

They're good reads. The mwhite comment made me think. For me I struggle to identify the relative validities between arguments which state facts and back them up with "and the reason why this is true is because" theories

For example, the mwhite comment says basically "the rich have got richer faster than the rest of society" (which is fact) and then goes on to say

The causes of this were weakened trade unions, tighter constraints on collective bargaining, flexible labour markets, reduced welfare spending, privatisation, globalisation, cuts in the top rate of tax, an explosion in executive pay and, last but not least, financial gains from investments are taxed at a lower rate than income generated by work, it then says that this, essentially, caused the melt down.

It reads like "Take a fact and ascribe a cause that fits your outlook".

The argument above kind of ties in with my outlook, and so I'm perhaps minded to believe it more than the opposite perspective - which also quotes a fact (the level of national debt) and ascribes the cause as something along the lines of we did not stick to the "Golden Rule" of paying back debt when the economic cycle was on the up, but kept on borrowing. That says the solution is that the country has been spending way more than we can sustain, and at some point we have to stop or reduce spending on "unproductive" social welfare that reduces growth by making poor people less willing to work and more likely to stay on benefits. It says we must cut taxes for the high earners and help free up things for business leaders and entrepreneurs so they can invest their money in generating industries and thus pay people who weren't earning money, but were taking money from the state and get them paying taxes and generate growth, put the business people, large and small in control of generating things, making things, starting things up. That the people of the country are in control, not some Gov't edict about this area gets money or that area gets money.

Both are arguments that are founded on, or seem to be founded on different sets of values and ideas about what Gov't and people should do and be in control of.

For me things like QE and printing money don't seem to be working, and they instinctively don't look like solutions to any underlying problems. But I'm not an economist.

It would seem to me that Gov't creating conditions for "work" to be done is a good thing. Whether that work be direct Gov't work on infrastructure, energy saving, energy generation (green stuff), transport, housing, schools hospitals and so on - things that will last a generation or more, that the country and will be benefitting from for ages into the future, or whether it be through incentivising certain sectors of the economy - instead of spending on a power station, spend on

insulation and energy saving grants that cost the same, but help installers and help cut fuel bills, and negate the need for a new power station, for example.

We bought banks, to save them, but seem to not wish to use that ownership to get them to be socially helpful or responsible, we seem to just want to make them like all the other banks and then sell them asap. Scared of "the markets". It's always "the markets won't react well" or whatever. Who voted the markets into control? who gave them control? Why are unelected financial predators deciding or dictating to Gov'ts what to do? WHy doesn't gov't(s) basically tell them ot eff off?

None of this is clear to me. No one can show clearly what's going on. All the arguments seem to have various merits and flaws, and the economist can show the Tory MPs up as ignorant and willfully blind easily enough, but if it's so clear (as it seems to be) why aren't non-tory politicians, without their ideological right wing zeal able to make hay with it all?

[peterms]

Pete,

You raise so many issues it's impossible to respond briefly. But here goes with some attempts to deal with the various points.

One reason why it's unclear is that there is such a lot of time, effort and energy spent on trying to make it unclear. Some examples:

Steve Keen mentions in his interview that the neo-classical economics which is taught in most university courses doesn't include in its models things like the role of banks and the finance sector. And so economic theory fails to predict key events to do with the things left out of the model - the 2008 crash being the obvious example. Most of the experts we hear from just reflect the dominant ideology, even though they so plainly failed to predict or explain the crash (as the Queen rather concisely pointed out to them, to their consternation). We almost always hear the one view, despite it being shown to be so lacking.

We are continually told untruths. One of the main ones is that governments are just like households, and both must balance their budgets. We are told that government income comes from taxation, or from borrowing. But since 1971 and the abandonment of the Bretton Woods agreement, governments have created money themselves. (It is the core of the Eurozone problem that the EZ countries can't do so, having entered a monetary union and given up the power to create their own money).

And so what follows from that is the idea that because households can't run deficits forever without going bankrupt, then neither can governments. That creates enough cover for people to accept what is essentially a political idea, that governments should be cut back, and that government spending is inherently dangerous. But it's founded on a fairy story. Governments can never go bankrupt in debts denominated in their own currency.

Another is that if we must fund government spending by either taxation, or else borrowing from "the markets", then if these markets don't approve of our economic policies they will raise interest rates to prohibitive levels, and so we must do their bidding. Again, it comes down to failing to understand and explain the nature of the economy in the present day, where money comes from, and what implications that has for public policy. We could and should do exactly as you suggest, tell the markets to eff off.

Another false conclusion is about debt. We are told that debt is bad, deficits cause government debt, therefore government deficits are bad and must be cut. This depends on people not understanding the idea of sectoral balances (explained here and illustrated below). Government deficits are a consequence of whether there is a surplus or deficit in the other two sectors, and not something inherently good or bad. If the private sector is running a surplus (as will usually be the case), there will be a government deficit, unless exports are big enough to allow both sectors to be in surplus; but all three sectors cannot be in surplus or deficit together, as a matter of accounting. It is bizarre that government deficits are spoken about in terms of moral laxity, rather than as simply a matter of fact, a consequence of the interactions of the economy as a whole. But that is part of clouding the issue, to prevent people seeing it clearly.

The real problem is private debt, as Steve Keen has explained, among others.

But this level of private debt has had two big consequences. First, it has massively inflated asset prices (notice how much private debt is the finance sector, money borrowed for speculative rather than productive purposes). Second, like debt throughout the ages, it transfers wealth and power from debtors to creditors. Both of these massively benefit the wealthy, as does squeezing wages, as does cutting back the state by privatising and creating more scope for private profit.

So why don't non-tory politicians explain this, and challenge the orthodoxy? It's immensely frustrating that they don't. Maybe it's because they think the orthodoxy is just too entrenched. Maybe they have been trained to believe it themselves. Perhaps they just lack the courage to take a line which will be attacked from all sides as (ironically) being "unrealistic". At any rate, the running seems to being made by alternative economists, not opposition politicians.

However, there has been more attention to the alternative view in the last few months than I can recall at any time. Possibly we are starting to see some slow shift in the climate of thought. More likely we will have the big tory u-turn on the economy without them admitting, or anyone else explaining, just why their ideas were always based on misunderstanding, deception, and just plain lies.

[JulieB]

Reason they don't teach about the role of banks & financial Institutions in Universities is because they make ANY economic model simply unsustainable! SimPly because they look after the banks interest & not the wider economy.Plus many key staff of Business universities are consultants or sit on boards of these same financial institutions!

Look at JP Morgan Chase Bank & what they've done with Billions of

cheap deposits breast fed to them by the US & UK governments.

Particularly as London has some of the most relaxed derivative regulations

of anywhere, they have been allowed to literally allow one trader (the London

Whale) to gamble & lose $2bn(although some say it's more like $7bn).

Now forced to sell decent long term corporate bond stocks of some £25Bn to generate the profit required to fill yet another hole in a banks balance sheet, thereby threatening the stability of JPMC's ability to draw income from these assets. Consequently raising the likelihood of needing a future bail out, particularly as their share price has nose dived recently when news broke of

the whale.

As I've said previously this now quad trillion, unregulated derivative sector, that few are aware of & even fewer understand, is putting the whole global economic system at the risk off collapse.

Governments paralysed to do anything because Banks like 'Government Sachs' as people in the City refer to them as, have over a number of years strategically placed their 'representatives' in high places across the globe to prevent any tightening of regulations.

Why isn't anyone in the media talking much about Iceland? In similar straits to where Greece are now a few years ago - but now because their population made their government take action for the benefit of the people, not the bankers - they are recovering well.

[PauloBarnesi]

Is it right now to be sceptical of the majority of economists?

[peterms]

Is it right now to be sceptical of the majority of economists?

If their models exclude large parts of the real world, if their theories fail either to predict or to explain the very biggest events in the economy, it's hard to see another rational response. Not all of them fall into those categories, just most of the ones running economics departments, working in financial institutions, advising governments, and determining IMF/ECB policy. Oh dear.

[peterms]

Brief overview of three broad ways of viewing the economy and the crisis, and the type of policy responses each approach implies, here.

Also characterised (by Stephanie Kelton) as deficit hawks, deficit doves, and deficit owls.