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Economics - July 7

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Many more articles are available through the Energy Bulletin homepage.


Why Americans Should Work Less – The Way Germans Do

Dean Baker, Guardian/UK
There is a solution to unemployment: if we worked the same shorter hours as Germany, we'd eliminate joblessness overnight
---
Nobel Laureate Paul Krugman and Richard Layard, a distinguished British economist, took the lead last week in drafting a sign-on "Manifesto for Economic Common Sense", condemning the turn toward austerity in many countries. This manifesto seems destined to garner tens or even hundreds of thousands of signatures, including mine.Assembly worker at Chrysler automobile factory, Detroit, 1952

While the basic logic of the manifesto is solid, there is an important aspect to the argument that is overlooked. We can deal with unemployment every bit as effectively by having people work fewer hours, as we can by increasing demand.

The most important point to realize is that the problem facing wealthy countries at the moment is not that we are poor, as the stern proponents of austerity insist. The problem is that we are wealthy. We have tens of millions of people unemployed precisely because we can meet current demand without needing their labor.

This was the incredible absurdity of the misery that we and other countries endured during the Great Depression, and which Keynes sought to explain in The General Theory.
(4 July 2012)



AIG Chief Sees Retirement Age as High as 80 After Crisis

Boris Cerni and Zachary Tracer, Bloomberg
American International Group Inc. (AIG) Chief Executive Officer Robert Benmosche said Europe’s debt crisis shows governments worldwide must accept that people will have to work more years as life expectancies increase.

“Retirement ages will have to move to 70, 80 years old,” Benmosche, who turned 68 last week, said during a weekend interview at his seaside villa in Dubrovnik, Croatia. “That would make pensions, medical services more affordable. They will keep people working longer and will take that burden off of the youth.”
(4 June 2012)



The Lower Ninety

Scott Burns, Asset Builder
Raw numbers can be striking. While Occupy Wall Street has focused on the 1 percent versus the 99 percent, the recently released Federal Reserve report on the Survey of Consumer Finances clearly shows that the Lower Ninety— the 90 percent of all households that are less well off that the top 10 percent— were hard hit by the housing bust that started in 2006 and endures today.

The study, which shows how our finances changed between 2007 and 2010, also confirms all the piecemeal reporting on foreclosures, job loss and the 401(k) plans that became 201(k) plans. And the losses aren’t limited to the housing wipe out. Most households are worse off today than they were in the survey done for 2001, before the housing bubble. Here are some of the findings from the report:

From 2001 to 2010 the bottom 20 percent of all households went from a modest net worth ($1,400 in 2010 dollars) to a negative net worth. While the largest percentage decline in net worth was for households in the second quintile (between 20 and 40 percent from the bottom), every household category but the top 10 percent suffered a decline in net worth. If most Americans feel poorer, it is because they are.

But you knew that. The loss was large because home values dominate the personal balance sheets of most households. Worse, the lower you are on the net worth scale, the greater the size of your home mortgage as a portion of home value. The same leverage that made people quickly rich during the bubble worked to destroy net worth very quickly in the downturn.
(2012)



Derivatives challenge citizenship (and economic survival)

Tom Atlee, Posterous
I'm interested in derivatives as a symbol of an economic system that's NOT based on productivity that satisfies real human needs. Derivatives are contracts that shift risk from players who are risk averse (and want insurance against loss) to players who have an appetite for risk (and want a big gambling win).* While originally intended to serve much like an insurance policy, they have turned into a tool for high-stakes gambling that puts everyone else at risk.

The speculative market in financial derivatives is - depending on whose estimate you read - THREE to TWENTY (or more) times bigger than the whole global economy - way bigger than the GDP of the entire world. Derivatives are a very big part of what is called "the casino economy". Financial speculation is basically gambling that the value of something - commodities, stocks, currency, whatever - will go up or down. The casino economy is not about producing or financing real goods or services.* It is about making lots of money for the successful gamblers.

The rest of us could let them go ahead and gamble except for two things. First, many of them use the money they get to buy more influence and power, making a mockery of "the free market" and "democratic self-governance". Secondly, the wrong sequence of bad guesses, responses and glitches in this highly computerized money-making game could wipe out the global economy that the rest of us depend on. We are still stumbling from the last global financial crash in 2008 - in which derivatives played a major role. But far bigger crashes are possible.

The article below introduces us to this bizarre reality. If you find it interesting, I suggest looking at the original article online, which is filled with links and is followed by more than a dozen mainstream articles - from the New York Times, Wall Street Journal, San Francisco Chronicle, etc. - making the same points. If you'd like to start with some pretty amazing visuals illustrating the amounts of money involved, try
http://demonocracy.info/infographics/usa/derivatives/bank_exposure.html

The main solutions - regulating the derivatives market and taxing speculative financial transactions - are fairly obvious but complex and (naturally) resisted by powerful interests. These solutions can only go into effect with massive public understanding and support. On the bright side, these solutions have some potentially very popular selling points - especially the tax, which would not only stabilize the speculative market but which - due to its gigantic size - would likely generate significant resources for creating healthy economies, societies and natural environments. (See
http://en.wikipedia.org/wiki/Financial_transaction_tax for various proposals.)


Tom Atlee --
I'm interested in conscious evolution as an active and integrated process of personal and social transformation, as well as many subsets of that -- collective intelligence, evolutionary spirituality, wise democracy, emergent economics, etc. My main home website is http://co-intelligence.org.

(30 June 2012)
Suggested by EB contributor Jim Barton who writes: "I'd never read such a quiet, yet urgent, discussion of derivatives. While EnergyBulletin concerns itself mainly with peak oil & other energy issues, the histories of energy and speculation have been very intertwined the last century."
-BA

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