Re: RE: The Collapse of Globa
Unh-unh.
"Indeed, we haven't seen anything over the last twenty years which resembles the traditional profile of a depression.
Then its not a depression. Full-stop.
Wet is not dry. Up is not down. East is not west. And expansion cannot be, by definition, a depression. Period.
The term "depression" means a prolonged, painful slump. Because there has been no slump - let alone a prolonged, painful one - there has been no depression.
For a guy who has spent so much time criticizing language - critiques I largely agree with BTW - its stunning to me that he would use language in such a sloppy manner.
The reason is very simple. After the economic crisis of the 1930s, we created a multitude of control valves and safety nets in order to avoid any future general collapse - strict banking regulations, for example, social security programs and in some places national health care systems. These valves and nets have been remarkably successful, in spite of the strains and the mismanagement of the last two decades.
This is one of the reasons why we no longer have depressions. The economists Saul so derides understand the counter-cyclicality of such programs which ease the downturns, and has, so far, helped avoid any prolonged slump.
However, because of the rational system prevents anyone who accepts legal responsibility from taking enough distance to get a general view, many of our governments, desperate and misguided, have begun dismantling those valves and nets as a theoretical solution to the general crisis.
Theoretical solution to the general crisis? It seems that Saul has cooked up a theoretical crisis instead.
Ironically, Saul wrote this just before the world was about to go on the longest economic expansion in decades.
Worse still, tinkering with these instruments have become a substitute for addressing the problem itself.
Which is?
Thus financial deregulation is used to simulate growth through paper speculation.
And as any student of economic history knows, speculation has almost always lead to a crash and a recession/depression in the real economy. That has gone on for centuries.
There are certain areas of the financial industry that I believe should be more regulated, ie. hedge funds and derivatives. But the deregulation of the financial markets have been an unequivocal boon. It is causing financial disintermediation away from the stewards of capital, ie. Bay Street and Wall Street, to owners of capital, ie. savers; it has increased competition amongst financial institutions lowering costs to the consumer; it has spread risks in the economy more evenly (another reason why economic volatility has fallen and we have not had the severe recessions of the past); it channels capital more efficiently and is a big reasons why America has lead the world in venture capital allocation the past few decades, etc.
When this produces inflation, controls are applied to the real economy, producing unemployment.
He's got it backwards.
Excess speculation is caused by excess liquidity, not the other way around. Excess liquidity is the reason why stocks, commodities, bonds, real estate, etc. have soared the past few years, and why they are cracking now.
When this job problem becomes so bad that it must be attacked, the result is the lowering of employment standards. When this unstable job creation leads to new inflation, the result is high interest rates.
"Unstable" job creation - whatever that means - does not lead to inflation. Excess liquidity creates inflation, which can manifest itself in the labour market. Central bankers worry about wage gains above the rate of productivity and above the long-term trend creating inflation.
(Over the past five years, the excess liquidity has found its way into asset markets, not general prices and thus wage gains, which is why headline inflation has stayed down.)
The fact that he implicity differentiates between "stable" and "unstable" as a factor creating inflation is amusing. Does "stable" employment not create inflation?
Oh, and the US economy produced 20 million jobs in the 1990s.
An on around again, guided by professional economists, who are in effect pursuing, step by step, an internal argument without any reference to historic reality. For example, in a single decade the idea of using public debt as an economic too have moved from the heroic to the villainous.
And right back again.
Funny, that. Maybe it has more to do with Saul not understanding financial markets and economics than economists' "internal argument"
Saul also blithely argued that countries like Canada should just default on their debt rather than deal with the problem which caused the debt. I wonder if he would have blamed economists if the government took his advice and wiped out grandma's life savings.
In the same period private debt went in the opposite direction, from villainous to heroic.
Ditto.
This was possible only because economists kept the noses as close to each specific argument as possible and thus avoided invoking any serious comparisons and any reference to the real lessons of the preceding period." - page 11
There are many reasons to be critical of economists, but perhaps instead of one person (Saul) being right about the problem upon which he is pontificating, and many thousands of highly trained professionals being wrong about their own profession (economists), maybe its the other way around.
