Global Crisis: Write-off or inflate debt away says Steve Keen

Aussie economist Steve Keen, host of the excellent Debt Deflation blog, has long argued that our current – record high – debt-to-gdp ratios are the real cause of the crisis. As the debt is still there, the crisis is still here. He offers a realistic assessment of our options –

Having got ourselves into a debt-induced economic crisis, the only permanent way out is to reduce the debt–either directly by abolishing large slabs of it, or indirectly by inflating it away. I have very little confidence in the ability of the Federal Reserve to do the latter, while the former will take a level of political fortitude that is far beyond our current politicians.

And channels Michael Hudson’s maxim “Debts that can’t be repaid, won’t be repaid”.

Indeed. My thoughts exactly, when commenting on a housing rescue proposal on Progressive Economy.

Read the whole article here – Naked Capitalism and My Scary Minsky Model

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  • DC

    Isn’t inflation just another tax, fine if you are wealthy I guess and can hedge their savings into gold while the rest of us get hammered in the pocket when the effects of it take hold on goods and services etc?

    I’m in need of some explanation of the theory behind both proposals.

    I think Merkel was suggesting writing off debt to certain creditors last I heard.

    Surplus profit analysis is the next item on the agenda – capitalism is it working effectively and efficiently?

  • joeCanuck

    You may not have noticed but they have already started inflating their way out of it. But to confuse us suckers they are now calling it “quantitative easing”.

  • is it just me who’s gets an image of Geldof and his cancel the debt hijinks while reading that?

  • Wait til you see QE2 honourable subject of British North America.

  • slappymcgroundout

    How about the 3rd option? Raises taxes on those most likely to be able to pay the tax.

    But that, and the other two, aren’t solutions at all. Do you know how much additional (beyond historic level) debt that Americans assumed over the last decade? 2.3 trillion dollars. So absent the reassumption of that debt, how do you and our author propose to fuel the world economy?

    There should have been near zero growth, as wages here in the US have been stagnant for almost two decades. The tech boom in the 90s can explain some growth as that was a new production that also helped some others become just that much more productive. But we can’t explain anything over the last decade. It was all owing to the 2.3 trillion in beyond historic level debt assumption. So unless we advocate cleaning the slate only to do that again, what is the solution here? That’s why we have the jobless recovery. The first thing that we Americans were told was that never again could we borrow so much. And so people aren’t. And so there isn’t the same fuel to drive the economy, and since the world economy hinges on American consumption, you’re mired in it with us as well.

    And it’s only going to get worse. Two words. Unfunded pensions. What until that hits the fire. It isn’t going to be pretty. And returning to my points in your other posts, it will be even worse, since a not insignificant contribution to outsourcing of jobs is stock performance and, wouldn’t ya know, our pension funds are rather concerned with the income from stocks, so even more pressure to send our jobs to those places wherein the ownership can exploit its workers, the profit margin thereby increased and the value and the return on stocks is increased as well.

  • Mack

    Slappy

    How about the 3rd option? Raises taxes on those most likely to be able to pay the tax.

    In this case he is refering to total debt – public and private. Raising taxes facilitates paying down public debt, but at the expense of the ability to pay down private debt. In terms of the total debt, it’s merely shifting deck chairs on the Titanic.

    Over the last century economic growth has gone hand-in-hand with an increase in debt relative to the size of the economy. To the point now where debt-to-GDP is nearly 500% in the USA, and higher again in Ireland! If borrowers now paying down debt (in the aggregate) rather than borrowing expect much slower economic growth, if they leverage up again – expect a bigger crash in the near future.

  • Mack

    DC –

    That’s one of looking at it. It certainly can reduce your savings and if your wages don’t keep up your purchasing power. Given though the level of indebtness – household, company and government – a lot of people would be better off with slightly higher inflation.

  • Mack

    Tyler Durden on the same

    Why is it so difficult for our leading economists to realize that the problem with the economy is not the stimulus, it duration, size, nor how it’s used, but that US and global debt levels are far, far beyond the fair value of world assets, and that a global debt restructuring simply has to occur, (and yes, one which would involve wiping out of broad swaths of artificial and mark-to-unicorn equity), if we are to have any chance of avoiding an all out free-fall bankruptcy in which everyone stops paying their contractual obligations at precisely the same time. This is also known as Chapter 11 101, and has worked in the corporate world for many decades without a glitch. Alas, as this kind of action would require the richest 5% of the world to lose the bulk of their wealth (and yes, this includes various Ph.D’s), this will never happen voluntarily. Which is why the financial oligarchy is currently being busy little bees stowing away as many hard assets as they can, knowing full well the day of reckoning is inevitable.

    http://www.zerohedge.com/article/roubini-says-obama-must-talk-americans-adults-even-he-advocates-treating-them-children

  • Mack

    There should have been near zero growth, as wages here in the US have been stagnant for almost two decades.

    In the USA, wages did grow significantly. Median wages (50th per centile) grew much less (although some argue that non-wage benefits increased – I’ve no idea how accurate that assertion is). The gains from productivity enhancements / economic growth all went to high earners. In particular the top 1%. In 1970 a typical CEO earned 28 times that of the average worker, compared with 400 times today.

  • Greenflag

    The political backdrop to any hyper inflation is something that cannot be lightly tossed aside . The financial ‘destruction’ of broad swathes of the middle class can have unforeseen consequences as anyone with a knowledge of the German Weimar Republic will know . Modern Zimbabwe is another case in point . There the local hyper inflated currency has been cast aside by the people who now conduct financial transactions via US dollars , South African rands or Botswana pulas or by barter .

    Now we might all assume that no way could our ‘western’ economic and political leaders repeat either the Weimar or Zimbabwe or even the Argentinian ‘white appliance ‘ economic experience .

    On the other hand was it not these very same people who delivered what we now have today ?

    The USA is now stuck between the apposite petrified fears of more debt laden stimulus spending or more unemployment and foreclosures amid a further downward spiral . Meanwhile the 1% are building more prisons for the increasing numbers of the economically destitute .

    ‘Buddy can you spare a dime ‘ needs just a little lyrical updating . Perhaps one of the 300,000 public school teachers soon to be laid off in a country with an already low standard (compared to other developed economies) of public school education might be up to the task of song writing ?

    For the increasing number of poorly educated kids coming from the poorest States and counties there will at least be plenty of prisons to choose from as a place of lifetime abode.

    And yet they (Americans ) or some of them believe they should ‘export’ their system of eh democracy ? .

  • Greenflag

    ‘But we can’t explain anything over the last decade.’

    War spending helped boost the economy . Some commentators have pointed out that one factor in the ‘rationale’ for the Iraqi invasion was the economic ‘boost’ effect for the US economy .

    ‘since the world economy hinges on American consumption, you’re mired in it with us as well.’

    Not just ‘us’ but virtually every country in the world bar Bhutan

    Whoever is trying to save ‘capitalism’ from itself in the western world better get a move on or the Boston Tea Party nutters will do it for them and these people have all the political and economic nous of HItler’s ‘stormtroopers’ with probably half the latter’s standard of education 🙁

  • “Having got ourselves into a debt-induced economic crisis,”

    I bet you love this guy mack, myself I stopped reading when he, like a flim flam man, tried to place corporate debt onto my shoulders. People like him and you are begining to become dangerous, as these arguments have been used to cut services and benefits. As it happens I have not got anyone into this mess.

    Perhaps we should do something really radical, increase the tax of all those individuals and corporations, small businesses, etc, who have more than 100K of debt. Those who have less or none according to this guys theory surly can have no responsibility for the massive burden of debt and thus have no responsibility to shoulder the burden to reduce it, nor have their living standards slashed.

    Not going there, thought not as you support socialism for the rich and destitution for the economically disadvantaged.

    OK I jest slightly but telling lies by implying we are all responsible for the state of the economy is not only untrue it is crass stupidity as most people understand who is to blame.

  • Mack

    Mick

    I bet you love this guy mack, myself I stopped reading when he, like a flim flam man, tried to place corporate debt onto my shoulders

    He didn’t you know, perhaps that’s half the problem, you make up your mind too quick and stop reading?

    I’m debt free, I hope you are to. If so neither of us built up the debt, or are responsible for it. However, we do share an economy with the indebted. Whether they are indebted households, governments, businesses or rich people. If they are paying down debt, they aren’t spending (maybe luxury goods for the rich, capital investment by business, consumer goods for households, and public services by government).

    We can turn the economy into a giant debt servicing machine if you like. But that will mean cuts in public spending and higher taxes. Or we can reduce the debt one way or another.

    If we take the later route, savers will be hammered, but governments will have money to spend, businesses money to invest, and indebted households would be able to enjoy life again free from the threat of the bailiff…

    Up to you (pl)..

  • DC

    The theory of writing off large sums of debt is fine by me but is it not really naive? Does it not tend to ignore the power from wealth and the authority behind global capitalism.

    “Yea, about that 15% return you thought you were getting on government debt ‘Mr & Mrs 5% Global Wealth’, it’s now only a 5%. Just deal with it, run along now – goodbye.”

    It would be like me phoning up my credit card company saying “look here this new rate now imposed is bang out of order so you are getting the repayments based on the lower amount. Goodbye.”

  • Greenflag

    ‘in which everyone stops paying their contractual obligations at precisely the same time.’

    Property foreclosures in the USA are as good an index as any of the economy . The first swathe of foreclosures due to too easy credit and lax almost non existent oversight of bank’s and lenders was the second dent in the USA economy following the Wall St Dow Jones drop from 14,000 to 9,000 thus wiping out or severely denting the retirement funds of tens of millions of pre retirement age americans . The sub prime debacle led to the the further emisseration of more tens of millions of americans generally at the lower middle to low end of the income ladder . The second phase of foreclosures began with the increased unemployment figures now estiimated to be closer to 20% of the population than the false ‘official ‘ figure of 9.7% .

    And now the USA faces a third unprecedented phase of foreclosure increases . This from people who are walking away from their ‘contractual’ obligations . Some of these people may have the income to pay their mortgages but see no sense in continuing to pay for an asset worth less now than half of what they paid for, or over the lifetime of a mortgage (20 to 30 years including interest payments ) perhaps only a quarter or even a fifth ?

    Meanwhile bankers Morgan Stanley are having a very good year with profits up 4 billion or 76% over last year and the British Government’s ‘tax’ of half a billion on executive bonuses will barely cause the Morgan Stanley Board to wince more than little as the fat cats peruse their Financial Times at the Ritz ;(

    And the world expects the USA to lift it out of ‘recession’ ?

  • Mack

    Spot on DC. Which is why it hasn’t happened yet, and why we have these never-never-land debt repayment policies so far.

    Whether it’s naive or not depends on whether the top 5% can defy the markets and gravity for eternity. I suspect not. She’s a cruel mistress, the market. Sooner or later the debt will have to be dealt with.

  • slappymcgroundout

    I wasn’t talking about taxing the average Joe. Think that 1% you were talking about. And taxed hard. Though to be more accurate, we’d tax more than upper 1%. Say 50% of earnings over 200K for the individual, 400K for married folk, and for each 100K increment above those numbers, add on another 5%, with the progressive taxation topping out at 90%. As you can imagine, it won’t business so long as business keeps the money in the business. And we’d also bring back the estate tax with a vengeance. And since you’re big on startups, the govt could use some of the money collected to fund startups, as not all would have to go to debt repayment.

    For everybody else, well, what does the one comment above say? Chapter 11 101? That’s a plan to repay part of the debt, or more correctly, reorganization. I suspect that for most, a chapter 7 liquidation of debt would be preferable. The lie one always hears is that it ruins your credit. Quite the opposite. Since you can only file once every 7 years, so you’re a better risk following the bankruptcy discharge, as you’re on the hook for the next seven years.

    Lastly, re the other comment re some having to face the music, it could happen rather easily if the media could put its stupidity and/or vested interest aside. Who says you can’t call up your credit card company and say, this much and no more? Remember the old saying, you owe the bank 200,000 and can’t repay and you’re in trouble; you owe the bank 200 million and can’t repay and the bank’s in trouble. If everyone simply acted as a cohesive unit, creditors sure as heck would take would they could get, as it beats paying lawyers and otherwise risking all in that chapter 7 liquidation proceeding.

    Almost forgot, but we wouldn’t ask the rich to give up everything, just a healthy share over time, more (larger share of) future earnings than anything else. If they don’t like that, then we can take everything, and if all truly goes to hell in a handbasket they lose life and limb as well as property. If I was them, I’d consider that possibility. Mobs aren’t the most rational of entities (as it were). And the morning after, when everyone realizes that it went too far, well, will be too late for some.

  • Mack

    We tax everything above €36,000 for a single person and €72,000 for working married couples at 53% in Ireland already.

    I did a blog here, on a way to balance things up via the tax code –

    http://sluggerotoole.com/2010/07/08/time-to-scrap-the-lower-marginal-rate/

    A tax on land, in Ireland, would be useful aswell.

    http://sluggerotoole.com/2010/07/09/on-the-necessity-of-a-land-tax/

  • Mack

    Look, in my book you start with the truth and the truth is, whether it is business debt or private, it all springs from corporate incompetence, at best, at worst criminal acts are lurking there.

    How can you expect any rational human being to trust people like this chap, when they begin with what they and you know to be a lie, we did not all get ourselves into this mess. He writes this because he is not prepared to place the responsibility where it lays. So why should anyone trust a word he writes.

    One question, are the following words total nonsense.

    “Having got ourselves into a debt-induced economic crisis,”

    This whole economic recession came about due to lies and half truths. It must stop, we should not look the other way because someone might have a germ of a good idea.

    No more quick fixes and wonderful ideas, please, raise taxes, gain international agreement to pay off the debt at a realistic pace, and cease use the recession to cut the welfare state and finally regulate to make this type of depression far more difficult to occur again. The fact is capitalism is a system of booms and slumps, so economic crises are inbuilt into it.

  • Reader

    Mack: That’s one of looking at it. It certainly can reduce your savings and if your wages don’t keep up your purchasing power. Given though the level of indebtness – household, company and government – a lot of people would be better off with slightly higher inflation.
    And people who saved for retirement will be dramatically worse off.
    The problem with cancelling debt is – who do you borrow off next time you want to Build a Hospital/Buy a TV/Stand your round ?
    A country with an ongoing deficit and no plan to fix it has no platform on which to cancel debt – it wouldn’t be able to pay its wage bills next year.
    Inflation is just another way of defaulting on some debt and trashing your national credit rating. (And since a lot of Government debt is inflation linked; inflation is no good for tackling the rest of the debt either)
    And a Eurozone country planning to default on its debt would find the Panzers of the Bundesbank parked on the lawn before dinner.

  • Read all of the following to know why war is the favourite option of idiots and morons ……. http://www.lexrex.com/enlightened/articles/warisaracket.htm

    And to whom is all of this crazy national/international debt owed? Who sits in the chair to collect? Who rules your sad and pathetic lives with your need to have pretty paper to spend for practically everything and virtually anything.

    Haven’t you yet realised that it is a Great Perverted Game and y’all are its Ignorant Patsies.

    “Give me control of a nation’s money and I care not who makes the laws.” … [Mayer Amschel Bauer] (1744 -1812), Godfather of the Rothschild Banking Cartel of Europe

  • Greenflag

    Martian ,

    Thomas Jefferson , Andrew Jackson and Abraham Lincoln were all aware who sat in the chair and were unable to do much about it . Even Dwight Eisenhower pointed out the dangers inherent in a democracy posed by the ‘military industrial ‘ complex

    “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake up homeless on the continent their fathers conquered”.

    Thomas Jefferson

    Gentlemen, I have had men watching you for a long time, and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the eternal God, I will rout you out.”

    US President, Andrew Jackson, 1832.

    “Banking was conceived in iniquity, and born in sin. Bankers own the earth. Take it away from them, but leave them the power to create money, and with the flick of a pen, they will create enough money to buy it back again. Take this great power away from them, and all great fortunes like mine will disappear. And, they ought to disappear, for then this would be a better and happier world to live in. But if you want to continue to be the slaves of the bankers, and pay the cost of your own slavery, then let bankers continue to create money, and control credit.”

    “The money powers prey upon the nation in times of peace, and conspire against it in times of adversity. The banking powers are more despotic than a monarchy, more insolent than autocracy, more selfish than bureaucracy. They denounce as public enemies, all who question their methods or throw light upon their crimes.

    I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe. [As a further undesirable consequence of the war…] Corporations have been enthroned, and an era of corruption in high places will follow. The money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until the wealth is aggregated in the hands of a few, and the Republic is destroyed.”

    Abraham Lincoln

    Fast forward to today from the BBC news

    ‘Insurer AIG agrees to massive $725m fraud payout

    AIG was bailed out by the US government at the height of the banking crisis. The US insurance giant AIG has agreed to pay $725m (£474m) to settle a long-running fraud case against it. The settlement is likely to be one of the biggest in US history, following a class action lawsuit led by three Ohio pension funds.

    They alleged that AIG had engaged in stock price manipulation, anti-competitive behaviour and accounting fraud between 1999 and 2005.That, they say, resulted in shareholders losing millions.The court now needs to give its approval before payments can be made.

    A first payment of $175m is scheduled within days of the court’s approval, however, while AIG is expected to raise the further $550m though the issuing of new shares.

    AIG is now 80% owned by the US government following a massive bailout of the company at the height of the financial crisis.

    Ohio Attorney General Richard Cordray, who represented the Ohio funds, said total payouts from AIG to shareholders would now total $1bn, including previous settlements.

    AIG said it was “pleased to have resolved this matter”, adding that it could now focus on paying back taxpayers the $182bn used to rescue it.’

    And the moral of the story is ? American Insurance General are not pleased to have been found ‘stealing ‘ pension funds ‘ ;(

    These are the people i.e the AIG thieves and many others like them from Bank of America to Goldman Sachs to Morgan Stanley etc etc etc etc etc for whom almost 5,000 Americans and thousands of other Allied troops have given up their lives in Iraq , Afghanistan and elsewhere . How many of the sons of AIG top executives have died on the battlefield . Nary a one . The several hundred thousands of Iraqis and Afghanis are just more blood profit added to the grist of the Haliburton and Blackrock corpse mills 🙁 .

    There are no Smedley Butlers in the modern US Army alas 🙁

    Nice touch with the Mark Twain piece . I’d read it a long time ago . Twain was a brilliant observer and descriptor of human nature in all it’s rational and irrationale foibles .

    I believe he (Twain ) on a visit to Belfast remarked on the peculiar talent of the city’s inhabitants who in their religious fervor opted for throwing bricks at the other’s in order to convert them to the proper religion 😉

    Plus ca change eh ?

  • Greenflag

    mick hall ,

    ‘but telling lies by implying we are all responsible for the state of the economy is not only untrue it is crass stupidity as most people understand who is to blame.’

    Well we understand or think we understand who and what were the prime movers of the current financial crisis specifically the greed mad and power hungry financial sector and their aiders and abetters the top politicians of all political parties by virtue of collusion or plain ignorance or also greed .

    That said the great unwashed cannot go ‘free ‘ without taking some of the responsibility . For millions bought into the ‘greed’ and the hype and the never ending ‘gravy train’.

    People are fools if they expect the large corporations, banks and insurance and financial services companies to be motivated by anything other than insatiable greed . It is the nature of the beast . A deficiency in the insatiable ‘greed ‘ trait by any of the above mentioned would soon lead to business ‘death’. The world of small and medium size businesses owned and often managed by the owners is a very different world from that of Wall St or College Green or Threadneedle St .

    To combat the ‘excessive’ greed of the largest corporations etc it is not only incumbent on democratic governments to legislate and implement policies that reduce the likelihood of corporate theft of pension funds or the gambling away of people’s retirement savings but it’s also up to the people yes the voters to make themselves aware of these situations and take action , boycott , demonstrate publicly , remove investments from those corporations and financial instituions which behave in a consistently anti social manner against the interests of the society/societies in which they are ‘permitted’ to do business .

    Eternal vigilance and all that backed up by some good old fashioned boycotting of products and services and the social ostracisation and public humiliation of those senior executives plus incarceration for lengthy prison terms for those found guilty of stealing billions using a pen or a computer keyboard .

  • Mack

    Greenflag –

    I mostly agree with those sentiments but think you are being a little harsh on big business, and not hard enough on society at large. Some businesses (large and small) are driven by simply by greed, however most, I think are engergised by their missions. People like to work for them & with them because they get an opportunity to do what they love (otherwise why would you ever interview at big corporation?).

    People to easily forget the property mania that swept the land. I’m minded of the woman who somehow managed to let her self into my apartment of a Wednesday morning, in 2004, looking for the show house, and asking inane questions about bus routes because she wanted to invest. If this was the calibre of property investor, it’s little wonder we are screwed. But even among the populace who did not invest in property, property mania had a firm grip. Parents pressured their children & girlfriends their boyfriends into getting on the ladder before it’s too late. At parties homeowners boasted about how much their house prices had risen. When an Englishman abroad (in Ireland :)) foolishly warned of a house price collapse in a Dublin pub, he was set upon with nationalistic fervour by most the rest of the group. Never happen here. During the nightclass I taught from 2004 onwards, if ever the students (mostly 50’s and up) had a free moment they’d be on MyHome.ie checking out the house price rises. (And yeah, even the odd younger ones did this).

    The small business heros you lord above, were not to be outdone. They formed syndicates and purchased property by the bucketload. Many of them are totally fecked now because of this.

    I think David McWillaims is right – there is an attempt here to create a moral skip (called Seanie Fitz) into which we foist all these undesirable traits to absolve society at large of her sins. Fuck that. I was here and awake, I remember what happened!

  • Glencoppagagh

    “And the moral of the story is ? American Insurance General are not pleased to have been found ‘stealing ‘ pension funds ‘”

    AIG stands for American International Group and they weren’t ‘stealing’ from Ohio pension funds.
    This all relates to a reinsurance transaction entered into by AIG about ten years ago which had the effect of inflating its reserves and, by implication, its share price. The main counterparty to the transaction was a company based in Dublin.
    Obviously the Ohio funds were extremely long of AIG stock.

  • mack

    It is beyond me how can you teach economics in a capitalist society without conceding greed is the main motivating force of big business.

    Yes, other often useful outcomes may emerge from big business, for example the pharmaceutical industry produce life saving drugs, but they are not its main motivating factor. If anyone doubts this I suggest they look at what CEO’s and senior management have been paying themselves over the last decade or so, and continue to right up to this day.

    What other justification can there be for such nonsensical salaries top management receive which have created such gross inequality within the work place.

    The fact is governments, most of whom have been brought and paid for by Capital, have not been harsh enough when dealing with business. Once again I note you side with the perpetrators not the victims.

    What ever next, can we expect you to blame the house holder when they become the victim of a burglar?

    Greenflag

    As always great suff, I especially like the quote from Andy Jackson as it raises a pertinent issues for today. Instead of smoothing big business path, the security services would have been better employed by emulating Jacksons spooks.
    That they were not is yet another example of the secret state supporting powerful vested interests within it, not the well-being of a majority of its people.

  • DC

    Well said Mickhall about capitalism.

    In the financial sector at least it is easy to spot that such elites did not work out of responsibility for the common good and for wider society, but instead out of self-interest and enlarging their own wealth and power.

  • Greenflag

    Glencoppagh ,

    Note I put ‘steal ‘ above between hyphens . It’s a nice short basic English word which applies easily to cases of petty burglary , property theft etc . Somehow it doesn’t sound quite right when it’s applied to large banking or insurance corporations does it ? I wonder why ?

    The fact that AIG agreed to the biggest ever pay out from a class action lawsuit in US history is an indication that there’s probably worse skullduggery yet to surface which the present owners the US government would rather keep closed and not spook another stock market plunge .

    Again from the BBC article

    ‘AIG had engaged in stock price manipulation, anti-competitive behaviour and accounting fraud between 1999 and 2005.

    Just like Enron , World Com ,Goldman Sachs , Lehmans , Bank of America , Citibank , Haliburton , Chase , etc ——————————————————————————————————————————-etc:(
    Not forgetting of course the multiple convoluted means by which the white collar financial services criminal class preyed on the gullible and the poorest people in the USA by ‘creating ‘ ninja ‘mortgages for tens of millions of lower income people and then selling the packaged totals to the rest of the world as ‘solid ‘ investments .

    If it’s all right by you I still think the simple English word ‘theft ‘ covers all of the above ;(

  • Glencoppagagh

    Greenflag
    You described it as “‘stealing’ pension funds” which the uninformed might easily assume to be pilfering from the funds.
    I was simply correcting any misapprehension that you or others might have been under

  • Greenflag

    Mack,

    “I mostly agree with those sentiments but think you are being a little harsh on big business, and not hard enough on society at large. ‘

    ‘Society at large ‘ ? What’s that . Do I not recall Maggie ‘Friedmann ‘ Thatcher stating that there was no such thing as ‘society’ or at least such was and remains the neo conservative perspective . Is’nt the world merely 7.5 billion people engaged in an eternal darwinian economic conflict in which the few winners get the loot and the losers are marginalised or somehow die off or are made to disappear from ‘media ‘ attention except for the brief interludes of some natural disaster ?

    Actually I’m not anti big business . I’m only too well aware that the accumulation of capital be it in human , infrastructural or financial form is and has always been the most difficult task facing our ‘ancestors ‘ Irish or otherwise on the planet .

    ‘Some businesses (large and small) are driven by simply by greed, however most, I think are energised by their missions.’ ).

    From an economic development perspective particularly for a country like Ireland and Northern Ireland it’s critical for longer term economic growth that small companies become medium size and medium size companies grow larger so as to compete internationally . Given the small local domestic market on the island -about 6.5 million there is no alternative except to export . These two hard facts i.e company growth and local demographics are the places in Ireland’s economic growth story where the rocks meet a hard place 😉

    That said my personal experience tells me that there is a huge psychological divide between the smaller entrepreneur businessman as owner manager and the much larger corporations be they financial , technological or even governmental departments /institutions . All of the latter are to greater or lesser extents bound by what I’ll call a hierarchical management structure . Since the 1980’s i.e the Reagan /Thatcherite ‘revolution ‘ the managerial’ classes have come to sit atop the very largest corporations and institutions in a manner which has enabled them to be paid or more accurately pay themselves vastly more in comparison to their employees than was the case back in the 1960’s or 1970’s . There are many reasons for this but chief amongst them has to be the decline of Trade Union power and membership -others are perhaps the absence of ‘political’ competition on the left i.e the former USSR threat , and of course the computer ‘revolution’ which has enabled control over people and systems in ways which are still being developed for good or evil ?

    ‘People to easily forget the property mania that swept the land.’

    It was’nt just Ireland – The same happened in Spain , the USA , and elsewhere . Your Englishman might have been from London in which case he’d have been aware of the many property booms and busts that London has experienced over the past three or four decades . This was Ireland’s first ‘property boom ‘ And yes I agree it was a mania . Given the country’s economic history and particularly the legacy of land league , evictions etc we in Ireland were probably the ‘ideal ‘ target for the money men .

    ‘The small business heros you lord above, were not to be outdone. They formed syndicates and purchased property by the bucketload. Many of them are totally fecked now because of this.’

    My personal experience of small business people outside the ‘property ‘sector and prior to the current bust is that the country does not have enough of them . These people tend to be the hardest working and most productive section within Irish society and they have to operate in circumstances wedged between both the cosseted public sector which can outpay them with taxpayers and borrowed monies and the large financial institutions which control their access to credit .

    ‘I think David McWillaims is right – there is an attempt here to create a moral skip (called Seanie Fitz) into which we foist all these undesirable traits to absolve society at large of her sins’

    Fair enough . Into that ‘moral ‘ skip David McW might also want to throw the hierarchy of the Irish Catholic Church as well as a cohort of present and former Government Ministers and politicians 😉

    Scapegoats have to be found . It’s de riguer . It’s the mechanism by which we the guilty absolve ourselves of any personal failings or culpability .

    Whether they’re led to the guillotine or the gas chamber or the ‘illegal ‘ immigrant prison camp or internment camp or gulag – those who fall afoul of the powers that be or the newly installed powers are almost a necessary requirement on which to build the ‘new myth’ of a new order .

    ‘ I was here and awake, I remember what happened!’

    Are you sure ? Anecdotal evidence is one thing and human greed is built in to the species which is why we have government and laws to protect us from ourselves 😉

    I don’t doubt for a moment your perspective on our local property mania here in Ireland /Northern Ireland . On the other hand I don’t doubt the capacity of humanity anywhere on the planet to find ‘scapegoats’ when societies implode and political and economic systems collapse .

    My main concern is that our economic new order both in the recent past and the near future is moving rapidly beyond the abilities and capacities of our elected ‘democratic’ leaders to manage both from a local and whats worse even from an international perspective ?

  • Greenflag

    Glencoppagh ,

    Fair enough . I think at this stage the ‘uninformed’ are no longer under any misapprehensions as to the upstanding ‘ethics’ of the top echelons of Anglo Irish or Nationwide much less Goldman Sachs etc . Madoff and his ponzified 60 billion dollars is now receding into that ‘ethical ‘ vacuum or as somebody said skip 😉

  • Greenflag

    DC ,

    True enough but lets not forget that what was ‘spotted’ was only spotted because the house of ‘theft’ fell in on top of the ‘thieves’

    A ‘golden calf ‘ moment as those of a religious bent might put it.

    The not just ‘invisible hand ‘ but the very invisible hand just upped and choked the very market mechanism it was supposed to correct . Still more than enough of the swine escaped the noose ;( Not so for the tens of millions added to unemployment lines around the globe of course or ravaged pensions or stolen prosperity .

  • Greenflag

    For today the issue is whether or not Obama’s new financial reforms will get the financial industry back onto an even keel or whether or no it will strangle or slow down economic recovery in the USA . The jury is out on the question but you can be sure that ‘banking and financial services ‘ interests are already hard at work trying to mitigate some of the new more ‘restrictive’ policies on their previous anarchic behaviour .

    We’ll know in a year or two most likley just about the time when Obama is perceived by the electorate as another failed Herbert Hoover or a modern reincarnation of Franklin Roosevelt ?

    Hoover was a much admired international figure before he became President iirc .

    The ‘trick’ for the GOP is to portray the Obama administration as being not just responsible for the economic meltdown but more importantly not having the answers to fixing what’s broke .

    The hope for the GOP is that the short attention span deficit syndrome common in consumer society will work it’s magic once again in 2012 . Personally I think that this current economic mess exacerbated by several wars will not be easily transferred to the Democrats but being seen not to have the answers by 2012 is another matter . The November elections should give a pointer .

  • Mack

    Mick

    It is beyond me how can you teach economics in a capitalist society without conceding greed is the main motivating force of big business.

    I don’t think it’s the main motivating force. What drives Steve Jobs today? An extra few million or a burning desire to create new innovative tech products? Why the extra effort?

    What motivates Larry Page today? He’s a billionaire many times over? My guess these guys love being at the cutting edge inventing the future.

    What motivated Bill Gates? Or Warren Buffet? If it was greed why are they giving all their money away?

    I would hazard a guess that even what might seem a classic, cut and dried example, Rubert Murdoch (or Silvio Berlsconi) are probably more motivated by power than greed.

    I don’t doubt that profits are a big motivator – without profits businesses can’t achieve much if anything at all. And I don’t doubt that high salaries can motivate people (but even there, Paul Evans posted a very good video about really motivates people to work a while back – I think high salaries elsewhere motivate people to leave (or stay in the inverse), but they’re not the motivating factors about people undertake projects).

    I’ve actually read a little Marx! I would concede that there are investors merely interested in making money (M-C-M’), but those guys certainly aren’t starting up businesses and when they run them, they’re likley to run them into the ground. And according to Marx – isn’t that supposedly the only goal of capitalists? That if they have other broader goals, they aren’t capitalists by definition?

  • Mack

    Just on the excessively high salaries for executives. I agree this is a problem, I disagree this demonstrates that greed is the primary motivator for big business.

    1. That wasn’t always the case, so it doesn’t demonstrate that big business is motivated by greed (or at least that that is a permanent state of affairs).

    2. Once one or two companies adopt those measures competive pressures force it to spread to the rest (think peacock’s tail effect – the peacock with the bigger tail get the girl. The companies offering the highest salaries get the best executives, or at least keep turnover low at that level). Once the trend is in place the disparity builds and builds. The challenge now is to reverse it.

    3. Since the 1960’s or 1970’s pension funds have made up an ever greater proportion of shareholders. The real shareholders are thus represented by the senior managers in the banks who have an incentive not to rock the boat. Classic principle-agent problem means that the people who should shout stop – and did prevent such excesses in the past – the shareholders – can’t.

    4. Carrot and stick tax effects. Much lower income taxes since the 1980’s for high earners makes it more worthwhile, giving large pay rises to those at the top, and taxes and reporting rules have changed to make other non-wage forms of executive compensation more expensive for companies to offer (e.g. share options, stock, company cars etc).

    5. Little attempt to intellectually challenge the framework. It’s seen as performance related, meritocratic – although in practice I don’t think it is. Very little challenging this perception – in terms of output from academics, politicians, journalists etc. So it isn’t surprising that senior management still believe they are doing the right things.

    6. It can / does work in the companies favour economically (tournament theory – winner takes all competition for promotions that provide ever greater pay rises, drives worker productivity higher at all levels) – in finance it has been demonstrated pretty conculsively that the bonus structure is counter-productive, see the principle-agent problem above.

  • mack

    It seems you are trying to convince yourself not me, for many CEO’s etc, earning the highest salary became a nob job, mine is bigger than yours, and it had almost nothing to do with competence. Remind me how much does the chief of BP earn, don’t get me on to RBS or the rest of the incompetent bunch. No CEO should earn more than10 times more than the wage of the average worker they employ. if as you say they are not motivated by greed, they should have no problems with this. I tell you one thing, if this occurred we would here less talk from CEO’s etc,about cutting wage levels Like wise, no trade union leader should earn more than the average wage of the workers they represent.

    Steve Jobs is a great example of corporate greed, he has a magnificent design team who have provided him with good product, yet profit became king. He produces apple product in chinese sweat shops instead of within the USA, his mark up is well over the top, indeed it is taking the piss, if he were not such a greedy fuck apple would have a large US workforce and still make a reasonable profit.

    He consciously with the latest iphone, placed an unproven product on the market before it was ready, people expected this from Gates but over the last few years it has become a sign of apple too.

    In this society power comes with great wealth, but some fools like Berlsconi wish to sit on the throne so they can also take the trinkets and plaudits which come with mockney political power. Do you not feel you are contradicting yourself when you say large salaries motivate people? The whole ethos of capitalism is greed and cheating people, i e selling a product or service for more than its worth, ie what it cost to produce. Indeed I am glad you mention Jobs, for as good as they are, there is no way Tech wise an apple macbook is worth twice the price of a dell laptop, or an iphone worth twice the price of its competitors. Jobs manages to pull this trick off by clever marketing and admittedly a fine product.

    As you have claimed to believe in a totally free market, you may argue the market will decide what it is worth, but I would say it is immoral to trade on peoples gullibility. People need protecting from themselves, surely that is why we have governments, or at least it should be.

    In your lopsided world view, the rich need encouraging with a large wad of cash to work productivly and the economically disadvantaged need threatening or penalised to be forced to work. More than that, you believe, whether business or individuals Capital need’s protecting from the State.

    There is nothing new about regulating capital, or even left wing, Mohammed as ‘gods messenger’ understood paying interest was usury and thus should be forbidden. To make a profit out of lending money is either playing on peoples gullibility, need or desperation, thus it should be outlawed or regulated.

    Now, we live in a capitalist society and there are a host of societal reasons why to date, many people believe it is better than the alternatives on offer. But that does not mean there is no role for governments when it comes to regulating the unacceptable face of capitalism, indeed I would suggest the way things are going it is imperative that global capitalism is strongly regulated, otherwise two thirds of the worlds population are doomed to destitution.

  • Mack

    Well oddly I agree government has a role in regulating capitalism. I’ve never said otherwise.

    I’d draw a distinction between maximising profits and greed. There has been massive sustained price deflation in consumer tech goods. If Apple produced those products in the states you can bet that consumer prices would be higher. It is possible that they would be out-compete by some competitors (but I think increasingly they are making their money from services). But they are still creating jobs and helping raise living standards in China. The markup over the price of production in China – also includes payments for R&D for new products (or historical payments depending on your perspective), and cuts for various middle men.

    Dell is a very low margin, bottom of the market business. They don’t develop anything themselves, they merely put together components from other producers (Intel, Microsoft, OEM manufacturers for hardrives, monitors etc). Apple design their products themselves, they develop the operating system and design the configutation of the hard ware components themselves. All of that costs money, in order to recoup their investment – they have to market their product as more upscale, and have to make sure it does offer more than a Dell. (I use a Dell myself though).

    Apple employ 25,000 people in the US by the way. They would probably outsource the low-value work done by Foxconn anyway – whether to China or elsewhere. My guess is that because China was more competitive that’s where they went.

  • DC

    I suppose the silver lining in the outsourcing cloud is that subtle pressure on Foxconn to improve workers standards in China and at its plant could happen or really should happen more forcibly.

    If left to its own devices China would care less if it wasn’t for a slither of morality that comes from Western society and its concern with what is happening there.

    Pity Apply couldn’t outsource Steve Jobs post.

    Just to add, I’m actually in favour of outsourcing public sector back office work in terms of HR and accounts so as to limit silo building and fiefdoms. But also if the grubby managers in the public sector can outsource the cleaners they should have their own management tools outsourced likewise.

  • Mack

    It seems to me the west is making the same mistake with China that it did with Japan, acting short term and treating the locals with contempt.(only 100 time more so)

    People see outsourcing as a means to increase profit, it is as simple as that, but when the Chinese worker eventually earns as much as a skilled worker in the West does today, as eventually happened with the Japanese, where will that leave the western economies, I would guess at the beck and call of the Chinese government.

    One only has to see the fate of the US automobile car industry to understand that. The problem we have, it will not just be cars in which the Chinese will dominate, but it will be the very roots of the US economy. Perhaps instead of only reading economic theory you economists should read the odd history book.

    It is absolute lunacy to shut down and transfer overseas a manufactory base, as has been proved in the UK, a nation cannot exist in the long run on a low wage consumer and a finance economy.(that stupid vengeful woman’s dream)

    Like the levels of debt, the levels of profit for some companies has become obscene, beyond the wildest dreams of post WW2 business people. If Apple produced its computers in the USA, it would still make a reasonable level of profit. As the market is based on greed and thus is unwilling to set what most would regard as a reasonable level of profit, it is for government to do this. It can be done quiet simply by taxation or diktat. What we will not survive in the long term, unless we change completely the way we live, is to carry on as we are.

    Your point about price deflation, as you well know, it due to outsourcing which exploits the workers. What people like you will not deal with is the destructive role profit has played in recent years, i.e., business can charge and do what they wish and government have no say in it. The market will decide, what fool said that?

    Exploitation of workers has once again become the established way of doing business, When such disgraceful behaviour is unacceptable, business up sticks to parts of the world where despots rule. One of the main reasons for this depression is business lost its moral compass. The unacceptable face of capitalism has become the norm, just as it was in the days of slavery, profit has become king.

    What can a Chinese or Indian worker offer what a US worker cannot? One thing only, they cost less; and you come on here and shamelessly claim profit is not the main motivating factor of big business.

    I despair sometimes with you Mack.

  • Mack

    Don’t despair Mick 🙂

    I think your view of the past is overly pessimistic, so maybe that is what is clouding your view of the future?

    A few points.

    1/ Price deflation in consumer electronics is primarily driven by Moore’s law (The number of transistors that can be placed inexpensively on an integrated circuit has doubled approximately every two years), obviously this doesn’t necessarily lead to cost savings in every component, so outsourcing does help too.

    2/ The price deflation in technology is not reflected in any Consumer Price Index anywhere accurately. Here are two pc’s

    http://www.amazon.co.uk/HP-Workstation-z600-graphics-downgrade/dp/B002WRUDD8
    £1,905.30

    http://www.amazon.co.uk/ViewSonic-VOT120-PC-Mini-Ethernet/dp/B002UP945U
    Price – £242.52

    No one in their right mind would argue these two pc’s are the same. You can run far more sophisticated applications on the first than the second. In about 4 or 5 years time a PC with the spec of the first will be available for the price of the second.

    As ever-high spec machines circulate software & internet companies provide ever more powerful software, often for free. This benefits consumers everywhere.

    3/ The USA did not have an unemployment problem until recently. In 2007 72% of the potential workforce had jobs. It’s fallen to 58.5% now. It remains at 72% in the UK. In other words, the dynamic that lead to Apple awarding the contract to Foxconn might well have changed. You might see different decisions made in the future. Who knows at that stage?

    4/ Not all service sector jobs are low paid. The high paid jobs do require high skills though (knowledge economy), so unfortunately they are often unavailable to manufacturing workers if they lose their jobs without retraining.

    5/ Yes, China is on the rise. But living standards rose in the West as Japan rose. This is not a zero-sum game. We will benefit from the innovations produced by the Chinese.

    6/ The Chinese are pursuing a Mercantilist strategy with the US (incidentally, so is the world’s biggest exporter – high wage, hi-tech Germany). They are keeping their currency artifically low and financing large scale deficit spending in the USA. That has to stop. When it does the dynamics of off-shoring may change to something more healthy in the US. I.e. the cause is the Chinese policy, the symptom are the decisions taken by US corporations.

  • Mack

    Btw, I didn’t say profits weren’t a motivation. I said I would differentiate between profits and greed. It’s profits that give businesses the power to invest and affect / change the world. I think most of those guys are more motivated by that, than money alone. Otherwise they’d be retired, drinking Caprhina’s on the beach in Rio..

    What can a Chinese or Indian worker offer what a US worker cannot?

    I’d like to see all Chinese and Indian workers lifted out of poverty. In the first instance into stable jobs away from subsistence farming, where a bad year can lead to starvation or death. Ultimately why should they not be able to enjoy the same comforts we do? Another way of looking at those PC examples in 4 or 5 years the second (cheapest) one, would sell for a fraction of that already lowish price. More affordable for poor families in the developing world every year.