Home > Regular Features > Weekend reflections

Weekend reflections

May 4th, 2013

It’s time for another weekend reflections, which makes space for longer than usual comments on any topic. Side discussions to sandpits, please.

Categories: Regular Features Tags:
  1. Ikonoclast
    May 4th, 2013 at 07:42 | #1

    The EU’s collapse continues. Unemployment is 12.1 percent across the zone, up from 11.4 percent in 2012. In Greece and Spain unemployment is 27 percent. Low inflation and low interest rates are part of an outlook that appears to be heading for deflationary depression. Greece, Spain, Cyprus and a few other nations are already in an economic depression.

    According to Bloomberg, “Gross domestic product in the 17-nation currency bloc will fall 0.4 percent this year, compared with a February prediction of 0.3 percent, the commission said in a report issued in Brussels today. This follows a 0.6 percent contraction in 2012 and shows the region headed for its first ever back-to-back years of falling output.”

    Does this EU malaise have a single cause or several contributing causes? Austerity policies (pro-cyclical budgets) are clearly playing a significant role. Nations which applied strong counter-cyclical budget deficits during and/or after the Global Recession have fared somewhat better. (e.g. Australia, the US and China).

    Are the EU’s and the world’s economic troubles solely due to austerity policies and structural adjusments as world production moves from developed nations to developing nations like the BRICs? Or are there other factors at work too? Some analysis suggests the developing energy and resource crisis (due to limits to growth) is the most fundamental cause of the slowdown. In other words is the world economy hitting the wall because it is hitting the wall or rather the ceiling of feasible growth?

    Recessions appear to be linked to energy supply shocks. When the final energy supply shock is not just a shock but a collapse of energy supply the implication is that this will cause widespread economic collapse. Dirigist action has not been taken in time to avert either climate change or the energy supply shock by taking energy efficiency measures, renewable energy development measures and transitioning to a steady state economy. Instead we have followed the overshoot path charted by laissez-faire policies (market liberalism).

    http://ourfiniteworld.com/2011/03/17/how-close-a-link-is-there-between-oil-price-shocks-and-recession/

    Note: I don’t agree with Gail the Actuary’s attempt in her more recent writings to re-cast the resource crisis as an unresolvable financial crisis. Mere financial crises are resolvable with proper budgetary policy and other dirigist actions. The resource crisis is the fundamental issue.

  2. Jim Rose
    May 4th, 2013 at 15:49 | #2

    The recent success of the uk independece party taking one quarter of the vote once again shows how easy it is to break into parliament

  3. indigo
    May 4th, 2013 at 17:05 | #3

    Why China’s economy might topple
    By Martin Wolf
    As Japan has shown, shifting to a lower-growth model is risky

    http://www.ft.com/intl/cms/s/0/e854f8a8-9aed-11e2-97ad-00144feabdc0.html#axzz2SIy4GwFe

  4. Robert (not from UK)
    May 4th, 2013 at 20:53 | #4

    Jim Rose, my understanding was that UKIP’s recent success occurred in the nationwide vote for councils, rather than for the House of Commons?

  5. May 4th, 2013 at 21:26 | #5

    JP Morgan up to no good, and actually being taken for task for once, in allegedly fiddling the electricity “market” in the US:

    The alleged scheme involves two related wholesale electricity markets maintained by the ISO. There’s the day-ahead market, in which power plant owners place bids to provide power for the California electricity grid in the future; and the real-time market, an auction market through which ISO buys electricity for immediate distribution to homes and businesses.

    To give plant owners an incentive to participate in these auctions, ISO guarantees to cover their costs for starting up or running their plants at a minimal level, even if their bids aren’t accepted. This is known as “bid cost recovery.” ISO rules allow bidders to claim payments of up to twice their real costs.

    In simplest terms, JPMorgan submitted bids in the day-ahead market that were so low the firm was certain to be accepted onto ISO’s roster of potential electricity suppliers — in fact, they were negative bids, essentially offering to pay ISO to take their electricity. The bidding is overseen by software, not human beings, and the automated program isn’t smart enough to distinguish a real bid from a potentially fake one. (Implausible as it may seem, there can be legitimate reasons for a power generator to submit a negative bid, but they don’t apply to JPMorgan.) ISO believes that JPMorgan never intended to make that sale, but the beauty of its low bids was that they made it eligible to collect bid cost recovery payments.

    The next step was for JPMorgan to make sure that ISO didn’t actually buy its electricity, presumably because the profit margin from the bid cost recovery claim was greater than from actually selling energy. So in the real-time market, it priced its electricity so high that ISO wouldn’t buy it.

    The bottom line, the ISO says, is that JPMorgan’s traders never intended to sell it electricity via these bids. The scheme, it says, seems to have been designed purely to capture a bid cost recovery payment the bank didn’t deserve, at a rate that was inflated anyway.

    Manipulation of California energy market gives consumers a jolt
    – LA Times July 18 2012

    Anyone who hasn’t seen “ENRON: Smartest Guys In The Room” should make a point of having a look. Pure evil “free market” genius.

  6. Ikonoclast
    May 5th, 2013 at 06:04 | #6

    As soon as you need artificial rules to create a “free market” you know it isn’t a free market. It’s probably a natural monopoly market.

    I’m intrigued nobody on this blog is interested in what’s happening in the EU though. We get hundreds of posts on personality and gender politics re Julia Gillard but none on what is happening to the economy world wide. That in itself is revealing.

  7. Paul Norton
    May 5th, 2013 at 07:28 | #7

    Having from time to time endorsed Niall Ferguson’s writings on World War I, I must now say that he has made a complete a*** of himself.

  8. John Quiggin
    May 5th, 2013 at 07:33 | #8

    @Paul Norton

    And not for the first time, either. It just shows the craziness of those who continue to endorse the policies of the Allies in WWI that even a warmongering imperialist like Ferguson can see that it wasn’t worth fighting.

    On the same line, Bismarck (no pacifist) observed that “The whole of the Balkans is not worth the bones of a single Pomeranian grenadier”, something his successors learned for themselves.

  9. Fran Barlow
    May 5th, 2013 at 08:52 | #9

    I’m in the process of moving. Hopefully, by mid-June, I will be represented by Michelle Rowland rather than John Alexander at national level.

    In theory, this would be an improvement. In practice, I’m doubtful. Presumably she is also some catcalling 457 anti-“queue-jumping” and “people-smugglers’ business model” xenophobe who also wants to cut welfare services to supporting parents, cut taxes for wealthy folk, give massive subsidies for wealthy folks’ super and spend whatever money is left over buying up submarines and fighter jets to help out with US wars.

    Someone tell me that’s not so. It’s a nice place hubby and I are going to with no2 son, but I’d like not to be scandalised at the politics of my representative. I suspect I’m going to be disappointed.

  10. alfred venison
    May 5th, 2013 at 10:09 | #10

    ferguson’s apologising all over the place for it now. too late, its the 21st century. i thought he understood modernity & post modernity.

    he who psychoanalysed krugman for the childhood roots of his supposed impoliteness to interlocutors has given amateur psycho-historians a gift that lasts forever.

  11. Sancho
    May 5th, 2013 at 10:31 | #11

    “But gays!” is the thinking conservative’s version of “because Jesus!”, but the reasoning is the same: everything would be perfect if only you nihilists would stop breaking taboos.

  12. Ikonoclast
    May 5th, 2013 at 10:52 | #12

    @Paul Norton

    Ferguson’s statements reveal what he really thinks. Why is he sorry? Only because his dog whistling didn’t get the pack on his side. He is sorry not for his views but only for the fact he can’t say such things and gather enough support to jack-boot the opposition. His entire scholarship is a clear set of crypto-fascist positions commissioned and paid for by the imperialist system.

  13. alfred venison
  14. Ernestine Gross
    May 5th, 2013 at 11:02 | #14

    @Ikonoclast

    “I’m intrigued nobody on this blog is interested in what’s happening in the EU though. ”

    Not at all, Ikon. To be interested in matters relating to the EU is not the same thing as taking seriously what some people write about the EU.

  15. Jim Rose
    May 5th, 2013 at 11:20 | #15

    @Robert (not from UK) UKIP has 11 euro MPs.

  16. Fran Barlow
    May 5th, 2013 at 13:41 | #16

    Hmmm … I found this from March this year in Pollbludger on Michelle Rowland, MP for Greenway …

    In what at first seemed a secure new seat for the party, Labor endorsed Michelle Rowland, a former Blacktown councillor. Rowland was said to have been “courted” by the party, and was imposed as candidate by the national executive with the backing of the Right. {…} Rowland went on to survive a 4.8% swing at the election to retain the seat by 0.9%.

    It continues … (on Greenway)

    A Liberal preselection ballot held last weekend was won by Jaymes Diaz, a Blacktown immigration lawyer of Filipino extraction, who was also the party’s candidate in 2010. Diaz is associated with the Christian Right faction of state upper house MP David Clarke …

    Interestingly, appaently one of the candiates Diaz defeated in the preselection was his own mother! Talk about “family values!”
    Apparently Rowland’s husband works for the Sydney Law firm Corr, Westgarth & Chambers and is involved in “ethical investment”.

    I haven’t found anything yet that distinguishes Rowland from the ALP right.

    So it seems that on September 14 I can give my effective preference to anyone as long as they drive on the right side of the road, to borrow from the apocryphal Henry Ford remark.

  17. Ikonoclast
    May 5th, 2013 at 14:55 | #17

    @Ernestine Gross

    So, all is rosy in the EU garden?

  18. Ernestine Gross
    May 5th, 2013 at 16:37 | #18

    @Ikonoclast

    I recall a post you wrote in which you talked about countries having different histories and different development paths. What happened? Doesn’t a bit of reality fit into the MMT talk?

    Several of the EU27 countries had a lengthy ‘dirigism’ period (former East-block countries). Of these only the Czech Republic and the former East Germany have managed to ‘align’ their economies with those of the founding countries of the EU. It took the better part of 20 years for East Germany to approach the conditions of most of the former West Germany in terms of employment, wages, housing, public facilities, productivity. Enormous wealth transfers from the West to the East of Germany took place. It was financed partly by federal government borrowing and partly by levies (called solidarity something – I forgot) on the incomes of people in West Germany. It was a progressive levy. If the GFC (US origin) had happened 6 years earlier, the Federal Government of Germany could not have responsibly helped Greece and others as much as what they did in addition to textbook type Keynesian counter-cyclical spending in Germany (akin to what happened in Australia). The Czech Republic has a history of entrepreneurship (in the positive sense of the word) and it is bordering the southern part of West Germany. This facilitated initially cross border tourism – spreading a little bit of money widely. At the time, during the early 1990s, the Czech Republic was not part of the EU but authorities in Germany didn’t enforce strict labour movement rules. Many Czech people are multilingual and very hard working. By 1995 Praque was renovated sufficiently to attract international conferences and tourists from all over the world. Each of the 27-6 countries that joined the EU over time has its own socio-economic history, with specific difficulties and advantages.

    The MMT rants which come out of Newcastle are uninformed about the reality of the project EU and the project Euro. To write, as you do, “The EU’s collapse continues” is an example of the total lack of understanding as to where things are. It’ll take another 20 years or more for ‘convergence’. Most people who are at least a little bit knowledgeable about the history know that the path to convergence is going to be difficult. There is only one easily identifiable constant objector. It is called ‘the city’. ‘The city’ belongs to a country which is not a Euro member. It is the crucial EU link in the web of proverbial Wall Street bankers. But all this goes beyond the mental model which you seem to promote.

    It is one thing for academics to compare the properties of the Keynesian era with that called the great moderation. It is another to promote confusion.

    Incidentally, maybe you would like to compare the unemployment rates of the founding EU member countries with those of the US and the UK. This would be a bit more sensible.

  19. Ikonoclast
    May 5th, 2013 at 17:48 | #19

    @Ernestine Gross

    I believe the MMT “rants” are coming out of Darwin now. The “ranter” has been more consistently correct in his analysis and predictions than most other economists I could care to name or not name.

    The austerity economics of the EU are failing and failing dismally. They will continue to fail. The US and the UK have hardly been leading lights of counter-cyclical spending. The UK in particular is going down the austerity path to deep recession. The founding six states were Belgium, France, Germany, Italy, Luxembourg, Netherlands. Let’s look at unemployment rates with Australia, UK and US as references.

    Australia 5.6%
    Belgium 8.2%
    France 10.6%
    Germany 5.4%
    Italy 11.5%
    Luxembourg 6.6%
    Netherlands 8.1%
    UK 7.8%
    US 7.6%

    Nothing to write home about there. Four of the founding states are even sicker than the US and UK. A fifth is an irrelevant tax haven and a financial parasite which produces little real product.

    Under the current set up the EU will continue to founder. The empirical evidence is all on the side of MMT analysis. That’s the reality. Strangely, I prefer empirical evidence over ideology and de-mystification of macroeconomics and money system operations over the arcane un-empirical theorising and iterative mystifications of inapplicable models of microeconomics and rational agents. I know that makes me an odd fellow.

  20. May 6th, 2013 at 01:05 | #20

    This is just a simple, ‘today’, example of what happens when you entrust taxpayer funded services to the free market (note how the failings were exposed by whistleblowers rather than government inspectors):

    The NHS has said it will not refer patients to a private hospital following a scathing assessment of the chaotic and dangerous conditions that led it to suspend children’s surgery.

    The Mount Alvernia hospital in Surrey, run by BMI Healthcare, one of Britain’s biggest private healthcare providers, agreed to suspend surgery earlier this week after the damning Care Quality Commission (CQC) report.

    Care failures cited by the CQC report included a surgeon who operated without gloves in blood-stained shirt sleeves, and a child who was not seen by a paediatrician for seven hours despite their condition deteriorating.

    An unannounced inspection in February, carried out after concerns were raised by whistleblowers, resulted in the hospital failing on every measure but one. It met an acceptable standard only on the management of medicines.

    Let’s all trust that systems of delivering care/services to our needy in Australia under recently proposed concepts work out better than factual experience overseas would tend to prove, shall we? Yay Free Market!! Yay Bi-Partisanship!

  21. Ikonoclast
    May 6th, 2013 at 06:36 | #21

    @Megan

    You are one hundred percent correct to say that the “free market” cannot be trusted to deliver honest and safe outcomes on its own. Oversight and regulation by the agencies of the democtratic state are absolutely necessary. People often talk of the costs of regulation but fail to talk of the costs of de-regulation or regulation failure. Car safety is clear example. There were costs in regulations which progressively required seat belts and other safety features. However, the costs in human lives and trauma and the medical costs of not regulating were much greater and these costs are now much reduced.

    The Global Recession of 2009 and its aftermath constitute another clear cost of the lack of regulation. Much of the economic damage could have been avoided if adequate financial regulations had been left in place and augmented as new financial innovations (confidence tricks) appeared.

    Privatisation is also a crock of manure for the most part. Natural monopolies, strategic infrastructure, public utilities and the operations of justice, health, welfare and education should for the most part remain in state hands. There is a place for religious, charitable and not for profit organisations in some of these fields if they again are subject to proper democratic oversight by the agencies of the democratic state. Those who would minimise the democratic state effectively want to minimise democracy itself.

    Having said all that, there is no prima facie case, so far as I can see, that the NDIS equates to privatisation or the removal of democratic state oversight of expenditure and outcomes. Does the NDIS equate to trusting tax payer funds to the free market or does it equate to the state buying goods and services from the free market with oversight, checks and balances? The state buys goods and services from the free market all the time.

  22. Jim Rose
    May 6th, 2013 at 18:15 | #22

    Car safety is clear example.

    Sam Peltzman showed that there was not structural break in fatalities among passengers when car safety laws were introduced in the 1960s.

    Did these safer cars increase the number of pedestrians killed because cars were driving faster?

Comments are closed.