Economics - Jan 16
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Bang Goes the Theory
George Monbiot, Monbiot.com
How they must bleed for us. In 2012, the world’s 100 richest people became $241 billion richer(1). They are now worth $1.9 trillion: just a little less than the GDP of the United Kingdom.
This is not the result of chance. The rise in the fortunes of the super-rich is the direct result of policies. Here are a few: the reduction of tax rates and tax enforcement; governments’ refusal to recoup a decent share of revenues from minerals and land; the privatisation of public assets and the creation of a toll-booth economy; wage liberalisation and the destruction of collective bargaining.
The policies which made the global monarchs so rich are the policies squeezing everyone else. This is not what the theory predicted. Friedrich Hayek, Milton Friedman and their disciples – in a thousand business schools, the IMF, the World Bank, the OECD and just about every modern government – have argued that the less governments tax the rich, defend workers and redistribute wealth, the more prosperous everyone will be. Any attempt to reduce inequality would damage the efficiency of the market, impeding the rising tide that lifts all boats(2). The apostles have conducted a 30-year global experiment and the results are now in. Total failure.
Before I go on, I should point out that I don’t believe perpetual economic growth is either sustainable or desirable(3). But if growth is your aim – an aim to which every government claims to subscribe – you couldn’t make a bigger mess of it than by releasing the super-rich from the constraints of democracy...
(14 January 2013)
Euros discarded as impoverished Greeks resort to bartering
Helena Smith, The Guardian
It's been a busy day at the market in downtown Volos. Angeliki Ioanitou has sold a decent quantity of olive oil and soap, while her friend Maria has done good business with her fresh pies.
But not a single euro has changed hands – none of the customers on this drizzly Saturday morning has bothered carrying money at all. For many, browsing through the racks of second-hand clothes, electrical appliances and homemade jams, the need to survive means money has been usurped.
"It's all about exchange and solidarity, helping one another out in these very hard times," enthused Ioanitou, her hair tucked under a floppy felt cap. "You could say a lot of us have dreams of a utopia without the euro."
In this bustling port city at the foot of Mount Pelion, in the heart of Greece's most fertile plain, locals have come up with a novel way of dealing with austerity – adopting their own alternative currency, known as the Tem. As the country struggles with its worst crisis in modern times, with Greeks losing up to 40% of their disposable income as a result of policies imposed in exchange for international aid, the system has been a huge success. Organisers say some 1,300 people have signed up to the informal bartering network.
(2 January 2013)
Ending the Era of Ponzi Finance
Daniel Shelter, Boston Consulting Group
In 1920, an Italian immigrant to the U.S. by the name of Charles Ponzi created the scheme that would cause his name to live on in history. He announced an arbitrage business that would buy postal reply coupons in Italy and exchange them for stamps in the U.S., taking advantage of significant price differences due to high postwar inflation. He attracted investors by promising extraordinarily high returns—50 percent within 45 days. But instead of investing the money to buy the coupons and exchange them for stamps, he simply used the money of later investors to pay high returns to earlier investors, extracting huge profits along the way. By the time the fraud collapsed, investors had lost nearly $20 million, the equivalent of about $225 million in 2011 dollars. Such frauds have been known as Ponzi schemes ever since.
The second-biggest Ponzi scheme in recent history—organized by the New York hedge-fund manager Bernard Madoff—led to losses of approximately $20 billion in 2008. The biggest, however, is still ongoing: the Ponzi scheme of the developed economies. It is not simply that the developed world has borrowed significantly from future wealth to fund today’s consumption, leading to huge burdens for the next generation. It has also reduced the potential for future economic growth, making it more difficult for the next generation to deal with this legacy.
It may seem harsh or exaggerated to liken the current troubles of the developed economies to a Ponzi scheme. I do so deliberately to emphasize the scope and seriousness of the problem. Nearly five years after the financial crisis, the leaders of the developed world are far too complacent. Politicians and central bankers have continued to “kick the can down the road,” pursuing policies designed to postpone the day of reckoning and avoid telling the public the truth: that a sizable part of the debt will not be paid back in an orderly way...
(14 December 2012)
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The Most Depressing Economic Idea of 2012: The (Near) End of Growth
Jordan Weissman, The Atlantic
Even by the standards of a field known as the dismal science, Northwestern University economist Robert Gordon is a remarkably gloomy thinker. This summer, while most of us were busy fretting about the tepid U.S. recovery, he managed to up the ante with a paper that looked 90 years down the line and asked, "Is U.S. Economic Growth Over?" As in, over for good.
His answer wasn't quite a straightforward, "yes," but it was nearly as bleak. Gordon predicted that a mix of technological stagnation and economic headwinds could feasibly slow the economy down to a crawling, pre-industrial growth rate, as mapped out in the green line on his graph below. With the new year just hours away here in the U.S., I thought it would be a good time to revisit my nominee for the most depressing economic idea of 2012, along with excerpts from a conversation I had with Gordon about his work a few months back...
(31 December 2012)
'Humanity Is Still on the Way to Destroying Itself'
Markus Becker, Der Spiegel
In 1972, environmental guru Dennis Meadows predicted in his seminal study "The Limits to Growth" that the world was heading toward an economic collapse. Forty years on, he tells SPIEGEL ONLINE that nothing he has seen since has made him change his mind.
SPIEGEL ONLINE: Professor Meadows, 40 years ago you published "The Limits to Growth" together with your wife and colleagues, a book that made you the intellectual father of the environmental movement. The core message of the book remains valid today: Humanity is ruthlessly exploiting global resources and is on the way to destroying itself. Do you believe that the ultimate collapse of our economic system can still be avoided?
Meadows: The problem that faces our societies is that we have developed industries and policies that were appropriate at a certain moment, but now start to reduce human welfare, like for example the oil and car industry. Their political and financial power is so great and they can prevent change. It is my expectation that they will succeed. This means that we are going to evolve through crisis, not through proactive change.
SPIEGEL ONLINE: Several central forecasts you made in the book have come true, the exponential growth of the world's population, for example, and widespread environmental destruction. Your prediction regarding economic growth, namely that it would ultimately cease and the global economy would collapse, has not yet come to pass.
Meadows: The fact that the collapse hasn't occurred so far doesn't mean it won't take place in the future. There is no doubt that the world is changing, and we will have to go along with it. There are two ways to do that: One is, you see the necessity of change ahead of time and you make the change, and the second is that you don't and are finally forced to do it anyway. Let's say that you're driving a car inside a factory building. There are two ways to stop: Either you put on the brakes or you keep going and hit the wall. But stop you will, because the building is finite. And the same holds true for Earth's resources...
(7 December 2013)