The General Economics Thread

Spain. When it comes to hard sciences, people trust us. But there's a very Hard on Soft Science mindset...

edited 21st May '15 7:45:17 AM by TheHandle

Given how my government is directly responsible for the clusterfuck the Brazilian economy is at right now, giving them more control over banks and private affairs would the last thing I'd want to.

Unfortunately, as we've observed, when it comes to economic matters it's very difficult to place trust in "the people", either collectively or in the form of their elected representatives, because most people lack even a basic understanding of economic principles and/or have conflicts of interest in the matter.

In this specific case, that isnt necessarily important, because the laws limiting financial misbehavior are already written, they just have to be enforced more rigorously.

And the people in the form of businessmen either, because they also don't understand economics? Or in other words, everyone.

The agencies that enforce said regulations are often drastically undersupported, so the regulations are slid.

Interestingly enough, the resources are cut in an effort to save money.

Which is just flat out stupid because if the government funded these agencies to functioning levels, they would create a mountain of new jobs and revitalize the economy majorly.

But the government isn't in the job creation industry or the quality of life industry here in the States at least.

In fairness, economics is complicated. It doesn't take a malicious misinformation campaign to trick people into failing to understand policies. The real problem is that a lot of economics goes contrary to common sense (governments should spend in a depression, for example, and debt isn't necessarily bad), so a lot of people without the proper education insist on how economists are obviously wrong about everything.

It never ceases to amuse me how we keep having conversations in this thread in quasi-parallel with the blogosphere. Brad DeLong, Paul Krugman, and Tony Yates have been working to analyze exactly why the right loves austerity so much and hates government intervention.

Yates asks how come we keep framing the debate over Keynes in right-left terms. Krugman notes that the right's hatred of Keynes goes way, way back and is based in their dogmatic insistence that government must never be the solution to any problem, lest the business sector lose confidence in its role as the master of a nation's economic destiny.

DeLong says that Krugman is oversimplifying and that there are actually two schools of right-wing economic thought. One is the ultra-fanatic, Austrian viewpoint that fetishizes free markets and the business cycle. Another is derived from Milton Friedman and takes a more mixed approach, wanting free markets but acknowledging that governments must conduct monetary policy to prevent depressions. Apparently, Friedman even acknowledged the role of fiscal policy towards the end of his life as he saw governments, like Japan, fail to maintain growth even with zero interest rates.

Ultimately, DeLong thinks that the really smart people behind the liquidationist, austerian viewpoints have become trapped in their own cleverness. They believe themselves above such things as having their models match empirical reality, and the more they fail, the more attached they become to their faith in their ideas. Meanwhile, the Friedman-inspired view has all but disappeared from Republican policy circles.

edited 21st May '15 11:46:35 AM by Fighteer

Eh, i think the Friedman view is still dominant and Austrian school has still remained out on the fringe when it came time to do policy. No-one of any serious power was saying "let the banks fail and no stimulus either" (some more zealous leftists wanted bank failures, but for the people to be bailed out). It is a saving grace of the Very Serious People that they understand, at the very least, that liquidationism would lead to revolution (or if not, all of them losing their jobs), and many of them have a more honest understanding that contractions need to be medicated.

Really, liquidationism kind of has to remain on the political fringe, because a liquidationist who got his or her way would be out the door after the first contraction.

Liquidationism?

Liquidationism is the idea that, in a major recession, we should allow all failing businesses to fail, all destitute private individuals to go bankrupt, and so forth, in what amounts to a Darwinian approach to markets. Rather than try to abate the crisis, let it bottom out.

The theory behind liquidationism is that recessions are caused by a misallocation of resources in the private sector — price distortions caused by bad information. The only way to get things back in order is to "reset" the system, much as you'd reset a wonky computer by restoring it to factory settings.

The guiding principle behind this theory is that only perfectly unfettered markets can properly set prices; any distortion is axiomatically the result of interference, which must be removed for markets to function.

Another way of looking at it is that liquidationists believe that government should never interfere in markets in any way whatsoever. Bull market? Let it run; the smart people will profit as is natural and appropriate. Bear market? Let it crash; the weak will be weeded out.

edited 21st May '15 1:04:40 PM by Fighteer

The idea that, like a forest fire, a periodic holocaust in the business world is both natural and beneficial, and that stopping it causes more problems than it solves. Austrians chalk up depressions to "accumulations of poor investments": people backed the wrong horse, eventually the unworthiness of their beliefs was proven, and now they're bankrupt. But they *must* be allowed to go bankrupt so that new people with newer, better ideas can take their place.

This idea is not without some truth. "Zombie firms" were a big problem in Japan as they moved into the lost decade, where the government decided to bail out insolvent corporations who everyone *knew* wouldn't survive if the government took their largess away. These companies were allowed to keep issuing debt that they could never hope to repay, and this had a chilling effect on investment because these companies were clogging up the system.

Indeed — even in the wackiest theories, nuggets of wisdom may be found. It is true that government intervention may prop up businesses that can and should be allowed to fail.

And ironically, in America, a lot of complacent zombie firms that were just begging to be washed away in the late '70s and the '80s were fixed by what amounted to unregulated financial activity (that is, leveraged buyout artists ousting complacent boards of directors and entrenched managers, essentially by force of borrowed dollars).

Of course, soon LBOs stopped being tools to revitalize stagnant firms and became tools of corporate raiding instead, but that's what happens when you don't regulate these kinds of things...

, The British approach during the same era was to Nationalise the firms when they failed — the companies that became British Leyland, Rolls-Royce and the Clyde Shipbuilders amongst them. And for others, such as the aircraft industry, they were coerced into conglomerates (most of which were later nationalised) as a means of competing against foreign competition and removing internal competition.

And as an aside, the Railways were also amongst those Nationalised in 1948 — after being Grouped as a result of the Railways Act 1921 — World War II pretty much ruining the network.

edited 21st May '15 1:53:43 PM by Greenmantle

I don't know if this is old news but it's the first time I've heard anything about it

I thought privatisation ruined it?

Dan Davies: Time for a Delivery of Eurofudge (Basically musing that most of the stituation with Greece has to be handled in a non-insane manner, but any reasonable solution has to be handled the utmost level of Kabuki theater style politics)

Keep an eye on Los Angeles, it's going to be a very interesting laboratory for minimum wage policy.

That was in the late 1990s, not the 1940s. Then, it was due to a lack of maintenance to locomotives, rolling stock and infrastructure and bomb damage to the network caused by World War II, and Labour wishing to nationalise Utilities^note  Even removing them from Local Authority ownership in the case of Water, Gas and Electricity or to "efficiently" organise industry as much as possible in order to earn foreign currency.

edited 22nd May '15 2:45:24 PM by Greenmantle

So, nationalization ruined it in the post-world-war and privatization ruined it in the pos-cold-war?

... I feel like I'm missing some context.

edited 22nd May '15 2:56:44 PM by TheHandle

Brazil federal deputy's chamber just approved an executive term to increase the tax over imported products to "protect" the national electronics industry from foreign competition, amid a skyrocketing inflation and consumer insecurity.

Hooray for having shitty overpriced products and an industry that refuses to improve

I fucking hate this country.

edited 22nd May '15 4:52:12 PM by AngelusNox

Both nationalization and privatization are major reorganizations that, even if they are a good idea, require a bit of forethought and management to do properly, and to know when to do them and when not to.

It's entirely possible to fuck up both coming and going.

@ Handle: No, I'm saying World War II ruined the British Rail Network. Nationalisation was more rescuing the network after the damage of WW 2, and fulfilling post-War Labour's Political ambitions^note  Labour were Socialist in those days, a somewhat Nationalist and anti-Soviet form of Socialism, but Socialist nevertheless. Nationalisation was in vogue during that era — for example, RENFE was nationalised in 1941.

True.

Secret Bank of England taskforce investigates financial fallout of Brexit

edited 22nd May '15 10:24:52 PM by Greenmantle

Hmm. It only seems reasonable to study the potential effects of a "Brexit" — these portmanteau pet names are starting to annoy me, by the way.

Brexit. A good name for a detergent.