Mainstream economists grasping reality (just barely)

[Jovial Monk]

Heard on Newsradio early this morning: the UK economy is still in deep doodo and getting worse. The US one a bit better but is likely not out the woods yet--will be interested to see sales & manuf figures in a few months: it too could go down again.

Edit: here is details on UK economy:

Shock figures showing that Britain is still struggling through recession sent the pound plunging and threw fresh doubt over Alistair Darling’s plans to cut the national debt.

The City and Downing Street were stunned as output data revealed that the economy shrank by 0.4 per cent between July and September — an unprecedented sixth consecutive quarter of decline.

The figures dashed predictions that Britain was emerging from recession and dealt a blow to Gordon Brown’s hopes of an economic recovery taking root before the election. The pound, which had been trading at €1.111 and $1.6693, collapsed against the currencies to €1.087 and $1.6323.

http://business.timesonline.co.uk/tol/b ... 888402.ece

And:

Some analysts are now talking about the current conditions turning from recession to full-blown depression. As much as £100bn worth of output has been lost in this slump and the consensus among economists is that the level of output seen last spring will not be seen again before 2012.

http://www.independent.co.uk/news/uk/ho ... 08390.html

Some wanted a short sharp shock. Some wanted to "wait and see." Rudd & Swan acted!

Look at the graph in my WorstChoices post. It shows WC did nothing, absobloodylutely nothing to decrease unemployment but it also, for the last couple years that our employment has held up better than others and is at the level it was in the middle of the mining boom!

Consumer confidence too is way up.

[Lefteee]

Yeah, not looking so good in the UK ATM.

Living in the age of neo-classical economics, we should remember that back in the days of classical economics - on which the current system is based - high unemployment was a fairly normal feature of the system in many places. Great Britain went through a 20 year long period where unemployment never came down under 10%. It ended only with the outbreak of WW2.

Keynes was worried that the poverty and other social hardships and injustices arising from such conditions would lead to Britain and other western nations undergoing a repeat of what occurred in Russia in 1917 or in Germany with the rise of Nazism.

It is certain that the world will not much longer tolerate the unemployment which is assosciated with present-day capitalistic individualism

He went on to argue that the malaise of unemployment could be cured without resorting to communist or Nazi totalarianism but that this would involve a large extention of the traditional role of government - which in his day was pretty minimal.

[Lefteee]

Which stands in contrast to Darling's plans to fix the deficit "problem" by slashing public spending and flogging public assets.

Stop the neo-liberal crazy train. I want to get off.



Though if the price was right, I might be interested in Nelson's column. It would look great in my garden.

[Lefteee]

Interesting comment by Ann Pettifor of "Debtonation":

The growing political pressure to exacerbate the crisis by treating the government’s budget as if it were a simple household budget and forcing it to balance worries me most. Politicians have forgotten that when government debt was five times what it is today – 250% of GDP in 1945 – a Labour government began to spend: by investing in the NHS, public housing and education. Miraculously (for economic orthodoxy) government debt fell. In other words, the government budget is not at all like a household budget – because government spending generates tax revenues. The economy will only recover when government investment compensates for a collapse in private investment

I am not sure what her understanding of our modern day fiat monetary economy is. She is referring to Keynsian approaches which were first devised and implemented in the days of gold standard-type economies. Despite the common perception and all arguments to the contrary, the rules that applied to such economies simply ceased to apply in any operational manner in 1971 when Nixon dismantled the bretton woods system - the last vestiges of the gold standard were done away with and fiat monetary systems prevailed. Most commonly thought of constraints on sovereign (federal) government budgets are voluntary. They may be political, ideological, sometimes even practical but they are voluntary.

I find her last sentence in particular quite interesting.

Can't post a link for some reason - just google "debtonation"

[Lefteee]

He went on to argue that the malaise of unemployment could be cured without resorting to communist or Nazi totalarianism but that this would involve a large extention of the traditional role of government - which in his day was pretty minimal

Some people might be under the impression that Keynes was some sort of left-winger beause of the type of policy directions he suggested. He was nothing of the sort - he was capitalist through and through. He was a wealthy stock market player, an elitist snob and he also had a thing for firm male arses (hey, who am I to judge Anyway, he switched teams and married a (female) Russian ballet dancer later on).

It was simply that he recognised the glaring, self-destructive weaknesses in the lassiez-faire-leaning system of the day and proposed remedies that would allow capitalist economies to continue to function without suffering the devastating collapses that caused the widespread poverty and hopelessness which the working class as a growing political force, had well and truly had enough of.

Keynes was no red-ragger - he was on a mission to save capitalism from itself.

[Jovial Monk]

Debtonation:

http://debtonation.org/2009/02/debt-det ... cleansing/

[Jovial Monk]

from the above ref:




Hocked to the eyeballs and rising.

[Lefteee]

This "gouged skull" is still practicing how to do that. There are some really interesting graphs out there, derived from public record data.

Notice when the current monster upsurge begins? Right at the beginning of the neo-liberal period, that's when.

[Jovial Monk]

Listened to NewsRadio (they often play a fair bit from NPR) on the way in to work this morning. US economy grew 3% in the last quarter but there is great doubt that that growth is sustainable--a lot of it was restocking inventories, stimulus money etc etc.

We shouldn't get too cocky either: China has been buying iron ore etc but again they have now rebuilt stockpiles so exports could slump a bit. However, we are getting steady growth in employment. India it appears is doing well and could underpin the mineral exports.

A resurgent mining boom will again see the emergence of the "skills crisis" with private companies not offering enough apprenticeships--that would see inflation rising.

Generally tho, the stimulus devised and implemented by Henry, Stevens and Rudd/Swan/Gillard & Tanner is a brilliant success. They went in early and hard. Apparently the 2008 Budget was designed to be expansionary, to boost inflation and allow the RBA to lift interest rates a bit more. Partly this was the fear of deflation, a worse scourge than inflation, partly to allow the RBA to cut interest rates hugely in big steps. I reckon it will become a text book case in economics courses of how to implement a successful stimulus.

Julie Bishop said "wait and see" some other idiot said "we should have had a short sharp shock not a stimulus."

Nope, waiting before launching the stimulus was Keating's single biggest mistake. A short sharp shock is only useful where, say, inflation had risen here but not anywhere else. It is useless where the problems come in from outside the country: no matter how sharp and short the shock was here it would not have affected the economies in the US/UK/China etc.

Let us hope for more growth in the US economy, more mineral purchases by the Chinese and Indians etc. Recessions suck! Long recessions sap the spirit.

This is one article about the US growth figure:

US economy grows 3.5pc in third quarter

Posted 9 hours 21 minutes ago

The US economy grew in the third quarter for the first time in a year as consumer spending and investment in new home-building rebounded, data has showed, unofficially ending the worst recession in 70 years.

The Commerce Department, in its first estimate of third-quarter gross domestic product, said the economy grew at a 3.5 per cent annual rate, the fastest pace since the third quarter of 2007, after contracting 0.7 per cent in the April-June period.

The growth pace in GDP, which measures total goods and services output within US borders, was above market expectations for a 3.3 per cent rate. The economy last grew in the second quarter of 2008.

Recessions in the United States are dated by the National Bureau of Economic Research and the private-sector group often takes months to make determinations.

The economy slipped into recession at the end of 2007 and has been in the worst downturn since the Great Depression of the 1930s.

Economists say the growth was helped by President Barack Obama's $867 billion stimulus plan.

The US economy was also lifted by the Cash for Clunkers car scrappage scheme, which finished in August.

But unemployment is still high, and experts say the ongoing recovery will be slow.

http://www.abc.net.au/news/stories/2009 ... 728187.htm

[Lefteee]

The US private debt rate is a bit worrying.

The composition of the debt is a bit different today than it was in '29. Then, it was largely to invest in the stock market, which involved a limited number of players. Today it is much more widespread across the consumer base as mortgage and personal debt. Many economic observers are expressing concern that the US consumer is in no postion this time to "leverage up" as they have done after each previous recession over the neo-liberal period. Vast amounts of nominal wealth have been destroyed in the collapse but the nominal debt and servicing commitments remain.

Adequate and sustainable growth in the US is going to require some other fuel than private debt I suspect.