The false dichotomy of greed

The Euro crisis appears to be developing into something similar to the 1980s Latin American debt crisis when the idea that, to quote Walter Wriston, who ran First National City/ Citibank from the 1960s into the 1980s it was assumed that: “countries don’t go out of business.” The Latin American leadership demonstrated that they, in effect, could, by defaulting. As a number of bloggers on MB have pointed out, government finances are not like household finances, although they are often seen that way. That much is well understood in the financial community, although perhaps not as well in the wider public.

What is not acknowledged in the financial community is the assumption implicit in Wriston’s comment: that governments can be seen like a business. It is the conflation of the two that is at the heart of the growing problems in the financial system, and it is driven mainly by political prejudice. The political right, ever since Ronald Reagan, has identified government as the “problem”. A slippery piece of rhetoric because surely it is “bad government that is the problem.” But it became a carefully crafted and heavily funded message that has eventually become ubiquitous — its reductio ad absurdum is the Tea Party movement. Business good, government bad. Ergo, government should become more like business. The centre left, especially fools like Tony Blair, enthusiastically embraced the idea that government should become more like business, ending up with current day absurdities such as seeing students in the education system as “customers” (absurd because these customers, by definition, do not know what value is, unlike normal business transactions).

That is the nonsense we now live in and it is the key to why governments have abrogated their responsibility to govern in the financial system. Financial deregulation was really the ceding of governments’ responsibility to set the rules, handing it over to traders, who set their own rules. “Greedism” as Paul Krugman puts it, took over.

So, to return to the Euro crisis, viewed through a longer lens the current instability is related to this conflation of government and business, the emergence of what Phillip Bobbitt in “The Shield of Achilles” calls the “market state”. The Economist described the Euro’s travails thus:

An alternative diagnosis explains the continuing chaos by pointing out that an implicit assumption behind Europe’s financial integration—that sovereign debt was risk-free—has been overturned, and no one knows what to assume instead.

The euro project was founded on a rule that there would be “no bail-outs” of governments’ debt. But, as an analysis by Peter Boone and Simon Johnson of the Peterson Institute points out, its financial plumbing developed in a way that suggested the opposite. Initially the ECB treated all sovereign bonds equally. Even when it decided to take credit ratings into account, the ECB’s practices discouraged banks from clear distinctions between sovereign bonds.

Yes, we are back with Wriston’s “governments don’t go out of business”. But of course, they are not in business, ever. And they can become insolvent.

My suspicion is that we are at a turning point in this long period of a priori demonisation of government. It is true that the anti-government argument was not without its merits, especially when seen in historical context of high levels of state control. Having no government is often better than bad government. Legislation and regulation is frequently counter productive. Incentives in private organisations are often clearer than in public organisations, lending the former a certain efficiency, at least some of the time (although, as we have seen, these private incentive methods can be easily corrupted).

The problem was the exaggeration. Business is not essentially “good”, nor government “bad”. For one thing, businesses routinely fail to last. Governments must last. In an area like infrastructure, which needs to last many decades, using businesses, most of which will fail in under ten years, is asking for trouble.

The malign effects of the exaggeration become most obvious in the financial system, where governments must govern. Finance is rules, governments must rule. But the rulers have left the building and those who should be ruled, the private players, have been allowed to set their own rules. Krugman and Robin Wells, in a review of a book “Age of Greed: The Triumph of Finance and the Decline of America, 1970 to the Present, by Jeff Madrick” (Knopf) describe how Milton Friedman popularised the anti-government mantra:

In Friedman’s worldview, free markets were the solution to practically every problem – health care, product safety, bank regulation, financial speculation and so on. And Friedman squarely blamed government for the Great Depression, a view that is at odds with the data. (Although it is almost certainly true that mistakes by the Fed made the situation worse.) As Madrick quotes him, “The Great Depression, like most other periods of severe unemployment, was produced by government management rather than by inherent instability of the private economy.” Replace “Great Depression” with “the financial crisis and its aftermath,” and it could be US house of representatives speaker, John Boehner, today, rather than Friedman in 1962, speaking these words. Like Reagan, Friedman proclaimed a creed of greedism  (our term) – that unchecked self-interest furthers the common good.

That is the problem, Krugman and Wells ask why it was allowed to occur:

There are a lot of villains in this story – so many that by the end of the book we were, frankly, suffering from a bit of outrage fatigue. But why have villains triumphed so repeatedly?

The proximate answer, clearly, is the abdication of regulatory oversight. From junk bonds to derivatives to sub-prime mortgages, regulators either turned a blind eye or were impeded by business interests and politicians – Democrat as well as Republican. Undoubtedly the most outrageous act – and the most economically damaging to the country – was Greenspan’s refusal to use regulatory powers at his disposal to rein in the exploding subprime market, despite being warned repeatedly that a catastrophe was brewing. Like Reagan and Friedman, Greenspan firmly believed in greedism; in his view, the financial markets could do no wrong.

Yet if the problem was lack of oversight, that leads to another question: Why did the regulators abdicate – and keep abdicating despite repeated financial disasters? This is perhaps the most frustrating aspect of Madrick’s otherwise excellent book: we get a lot of the what, but not much of the why. Madrick’s character-centred narrative makes it seem as if the triumph of greed was the result of a series of contingent events: the inflation of the 1970s, the exploitation of that inflation by Reagan and Friedman, the wheeling and dealing of the likes of Sandy Weill, and the diffidence of Jimmy Carter and Bill Clinton. Yet surely there must have been deeper forces at work.

Krugman and Wells go for a political explanation, for which there may be some merit, although one senses it is a bit irrelevant:

We have argued elsewhere (and are not unique in doing so) that white backlash – especially Southern white backlash – against the civil rights movement transformed American politics, creating the opportunity for a major push to undermine the New Deal. Also, it’s hard to make sense of the growing ability of bankers to get the rules rewritten in their favour without talking about the role of money in politics, and how that role has metastasised over the past 30 years. There’s another book to be written here – perhaps less personality-centred and hence less entertaining than Madrick’s, but one that gets at the forces that made the reign of financial villains possible.

Whatever the deeper story, however, Madrick’s subtitle gets it right: what we have experienced is, in a very real sense, the triumph of Wall Street and the decline of America. Despite what some academics (primarily in business schools) claimed, the vast sums of money channelled through Wall Street did not improve America’s productive capacity by “efficiently allocating capital to its best use”. Instead, it diminished the country’s productivity by directing capital on the basis of financial chicanery, outrageous compensation packages and bubble-infected stock price valuations.

My suspicion is that it has mainly been intellectual fashion, fanned with the backing of any number of corporate backed think tanks spewing out “research” that was anything but real research; rather pro-business propaganda. A sort of flat earthism, helped by some unsavoury support from those who benefit the most. But in the end its supreme illogic is catching up with it. When the contradictions of greedism only affected peripheral economies, such as Latin America and Asia, then those “other countries” could safely be blamed. But now it is affecting the major developed economies of Europe and the US, and it is becoming harder to avoid the obvious conclusion. It is not a choice between no government or bad government. It is a choice between bad government or good government.

Comments

  1. “But in the end its supreme illogic is catching up with it. When the contradictions of greedism only affected peripheral economies, such as Latin America and Asia, then those “other countries” could safely be blamed. But now it is affecting the major developed economies of Europe and the US, and it is becoming harder to avoid the obvious conclusion. It is not a choice between no government or bad government. It is a choice between bad government or good government.”

    +1

    ”The glue that holds all relationships together — including the relationship between the leader and the led is trust, and trust is based on integrity.” –Brian Tracy

    Jasmine

  2. “Whatever the deeper story, however, Madrick’s subtitle gets it right: what we have experienced is, in a very real sense, the triumph of Wall Street and the decline of America. Despite what some academics (primarily in business schools) claimed, the vast sums of money channelled through Wall Street did not improve America’s productive capacity by “efficiently allocating capital to its best use”. Instead, it diminished the country’s productivity by directing capital on the basis of financial chicanery, outrageous compensation packages and bubble-infected stock price valuations.”

    Could add to that all the good brains that could have been doing something worthwhile, instead attracted by the high incomes on offer were used to devise ever more elaborate ways of extracting money out of the system, eg. high speed trading. It’s like some legal skimming operation similar to what the mob ran in Vegas.

    • A gold standard would render the vast majority of financial shenanigans null and void. Bit hard to make money on FOREX trading when the exchange rates are static 😛

      We’ve tried fiat and it’s clearly a failure for the good of the common man whom governments profess to represent / care for.

      • got it, it’s a must read.
        Its a shame that economics is such a failed science and we need an anthropologist to explain basic facts about money and debt.

      • Nope, no salvation there. Great depression and numerous other boom bust cycles happened under gold standards. If anything the history suggests a gold standard makes things more, not less, volatile and hinders efforts at recovery.

      • Huh?

        There were no depressions since Bretton Woods end of WW2.

        When Nixon ditched it in 1971 is when money supplies started to go awry but credit standards were still high.

        Mostly because of Glass-Steagall (1932)
        http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Act

        When GS was ditched in 1999 it became a free for all Ponzi
        http://en.wikipedia.org/wiki/Gramm%E2%80%93Leach%E2%80%93Bliley_Act

        CDO’s (1987) and CDS (1994) enabled one to lend to the risky but not take all the pain.
        http://en.wikipedia.org/wiki/Collateralized_debt_obligation

        http://en.wikipedia.org/wiki/Credit_default_swap#Conception

        In summary, it was the unwinding of Bretton Woods (1971) the creation and spread of Debt Securitization (1980s to 1990s) and the unwinding of Glass Steagall (1999) which was the last vestige og greed restraint. Off they (banks)went(like Raptors?) devouring everything…

      • I’d be interested in seeing what would happen if Keynes’s proposal were to been adopted in full, including the Bancor – which the Chinese have been suggesting recently. Not sure on how many other details were changed, but the US wouldn’t have needed to ditch Bretton Woods if that had been in place.

      • I would prefer cycles of recession hapeen sooner and more often than what they will be soon. The bigger they are the harder they fall. Most stimulus measures in a fiat economy are just can kicking measures. Very easy not to have recessions often if you are can kicking however iy definitely has an element of moral hazard to it. In fact after all the things that happened because of this perceived stability including financial deregulation, bubbles of all kinds, breakdown in soverign debt as they took on too much, and others was probably most caused by stimulatory policies. After all if your inesstment doesn’t make sense that’s OK since government will save me and stimulate the economy.

    • “The US is blinded by its own ideology.”

      I’m most astounded by the pure venom expressed against socialised health care. The US has the most expensive health care in the world yet I saw a UK charity set up a MASH style medical camp to provide health care and they were literally swamped with people whom could not afford basic health care.

      I mean, someone turned up with a rifle to an anti-Obama/health care rally. Seriously? You are going to shoot someone because they want to provide first world health care at affordable prices?

      • Health insurance has increased the ability of the medical profession to overcharge for its services. Just listen to any 2 doctors talking about their real earnings.

      • ‘health care is socialism’, but what about
        the corporate subsidies of the warfare state – bectyl, haliburton, GE, lockheed martin etc?
        Or how the low tax rates of the rich are subsidized by the middle income earners.

        A republican tea party senator said at a rally recently that riding a bicycle was the fast train to socialism!

        As a bike commuter I can confess that I lean
        a bit to the left. 🙂

      • “Or how the low tax rates of the rich are subsidized by the middle income earners.”

        wrong, so wrong;
        http://www.american.com/archive/2007/november-december-magazine-contents/guess-who-really-pays-the-taxes

        “The wealthiest 1 percent of the population earn 19 per­cent of the income but pay 37 percent of the income tax. The top 10 percent pay 68 percent of the tab. Meanwhile, the bottom 50 percent—those below the median income level—now earn 13 percent of the income but pay just 3 percent of the taxes.”

        argue your point but don’t state falsities.

      • That article by the Americam whatever is one of the most inaccurate and most misleading articles I’ve ever seen on the is subject. . I spent 35 yrs in the investment industry and carried thru a right-to Atilla-the-hun attitude, but this article is pure bull shit. The US tax structure is somewhat progressive(that’s good!). But federal taxes raised are less than in most banana republics (that’s not so good). there’s a social security problem; fix it. It’s been done before.

      • affordable prices lol, the only people that win out of socialised health care are the bureaucrats that administer it

  3. “Free market” has changed from being an economic model to reglious dogma. Instead of getting off the dead horse, the ‘free marketeer’ insist that we’re only in trouble because the market was not ‘free’ enough. You have fit an economic model to what happens in reality, you cannot force reality to submit to an economic model.

    Rresearch in macroeconomic has stopped from the 70s, when the academia consider the problem ‘solved’. The advent of the PC and the internet have changed the global landscape in terms of trade, consumption and production. However, the macroeconomic models have not been updated at all. Like generals who keep fighting the last war, economist are trying to solve the problems from a past era. This result in policy makers believing ridiculous models like ‘The Pitchford Thesis’, where CAD doesn’t matter because the exchange rate will self adjust.

    Applying the ‘template solution’ is institutional. When the Asian economic crisis hit, the IMF applied the ‘Latin American’ solution that is meant to solving a government debt crisis. In reality, Asia’s problem was having their private debt denominated in US dollar. What they need was capital control. The contractionary fiscal policy caused a lot of unnecesary hardship and the downfall of governments. This is why every Asian country now sit an enormouse war chest of foreign funds : they don’t want it to ever happen again. The IMF has directly contributed to a revamp of mercantilism.

    Japan’s ‘lost decade’ is another example. The triggering event was the Yen appreciating from 160Yen to 1 USD to 80Yen in the late 1980s. To protect their industry, the Japanese government created a real estate bubble on purpose. The idea was to make it cheap for Japanese companies to borrow and invest in new technology upgrades. The companies borrowed the money, but used them to speculate in real estate instead. When the bubble eventually bursted, it devastated the economy.

    First, the Japanese government tried to solve it via a zero interest rate policy : it didn’t work. Next, they tried to solve it by Keynesian stimulus : that didn’t work either, but only after many riverbed were paved with concrete to ‘make the river flow smoother’. The Japanese government was trying to solve ‘The Great Depression’, but the real problem is an economy that can only works when the yen is 160Yen to 1 USD. The only solution is to do what China is going now : a peg to the US dollar.

    This is why economic dogma is dangerous. When the macroeconomic models are stuck on solving past problems, policy makers will continue to apply the wrong solution to their current problems.

    • “The triggering event was the Yen appreciating from 160Yen to 1 USD to 80Yen in the late 1980s. To protect their industry, the Japanese government created a real estate bubble on purpose. ”

      i’d the the triggering event was the government trying to protect industry with a real-estate bubble. The effects of this were much worse than if the government would have left the yen valuation alone.

      you argue against free markets at the same time you point out government interference in markets that had a worse effect then a high yen evaluation.

      If a countries currency is valued higher than all imports are cheaper, Japan is a importer of almost all the raw materials it needs to build the products it exports.

      By devaluing its currency on purposes because of political pressure the Japanese government shot itself in the foot which gave way to its last decades.

      free markets and manufacturing gave japan its wealth after the war, government gave them there last decades not strong terms of trade and a high yen evaluation.

      • Post-war Japan is a planned economy, not a free market. The Japanese ministry of Finance controls everything : from who the banks should lend to, to what companies should make. It was a very successful model until the Japanese government screwed up with the real estate bubble.

        Here is the chart of historical Japanese exchange rate to the USD.

        http://en.wikipedia.org/wiki/Japanese_yen#Historical_exchange_rate

        In Australia, we noticed the effect of the ‘two speed economy’ when the AUD went from 65c to $1.10 against the USD in 2 years.Tourism, retail and manufacturing suffered immensely. The same happened to Japan but for much much longer. Businesses took advantage of the high yen and moved their factories overseas. This created massive unemployment and suppressed domestic demands even further. When every other Asian country is running a pegged regime, free floating the Yen is a policy of national suicide.

    • What a load of BS.. this crisis in sovereign debt has nothing to do with free market economics.

      Free markets didn’t make the lazy European governments hand out too much welfare. That is a result of social democratic governments ruling Europe for decades.

      Free markets didn’t allow the PIIGS to reach the state they are in today.

      Free markets were trying to correct the mistakes, but along comes the ECB and IMF in yet another round of bailouts.

      Free markets are not responsible for central banks and government bail outs. Free markets don’t force interest rates artificially low and accommodate a housing bubble. Free markets didn’t provide the 3 ratings agencies with a license to rate any piece of garbage as AAA+.

      Free market ideology would have let the bad banks collapse in 2007, and the good ones survives.

      • Jono

        I think you are in ‘heated agreement’ as the assertion is not that free markets were to blame but that, ‘free markets cannot perform as a selfregulating mechanism’ for various reasons including THERE IS NO SUCH THING as a free market.

        Good government make good regulations that encourage a ‘more’ free market environment.

        But I like your comment Jono

        Thanks

      • Oh, come on, Jono,

        “Free markets didn’t allow the PIIGS to reach the state they are in today.”

        Marc Faber on Lateline Business, September 22, 2011.

        “Well I think it already happened. Basically, in 2008, most banks in the Western world went bankrupt. The Government came out and bailed them out and provided liquidity to the banking system. What subsequently happened, you can see with UBS in instead of holding subprime loans where they went bankrupt in 2008, they now trade in Greek bonds, Portuguese bonds, indexed futures and so forth. The banks are basically bankrupt.”

        So, the free markets didn’t allow the PIIGS to reach the state they are in today?

        Do you recall the arrangement drawn up between Goldman Sachs and the Greek Government, a copy of which was posted on the internet some time back, the sole purpose of which was to allow the Greek Government to circumvent and exceed EU borrowing limits? Last time I checked, Goldman Sachs was part of the “free market”.

        “Free markets are not responsible for central banks and government bail outs.”

        So none of the TBTF banks went to Bernanke and asked for bail-out money – he forced it down their unwilling throats?

        “Free markets don’t force interest rates artificially low and accommodate a housing bubble.”

        This is a good one – have you looked around lately and seen what Australian banks are currently doing in order to continually reinflate the Australian housing bubble? Reduced interest rates on fixed mortgages, 97% LVRs, previous rent paid counted as savings, (insert favourite incentive here). They are not “accomodating” a housing bubble?

        “Free market ideology would have let the bad banks collapse in 2007…….”

        Yes, free market ideology probably would have….but the (real) free market wouldn’t have a bar of it.

        The thing I really like about Government Vs Business is that if government does something I don’t like, I have a vote which is worth exactly the same as every other mans vote, and I have a chance to chuck the morons out of office.

      • “This is a good one – have you looked around lately and seen what Australian banks are currently doing in order to continually reinflate the Australian housing bubble? Reduced interest rates on fixed mortgages, 97% LVRs, previous rent paid counted as savings, (insert favourite incentive here). They are not “accomodating” a housing bubble?”

        I’m sure there is enough blame to go round on this argument. I’m not sure who is to blame for this one Govt, Central Banks, Academic Economists, or the whole damned society, but Negative after-tax real interest rates are probably the single biggest long term factor in our excess and debt accumulation. Indeed most on MB are still advocating lowering interest rates and more debt.
        I get the feeling the ones we need to blame is ‘us’ We all seem to want our problems solved by having others pay one form or another.

      • The problem is that if government controls one aspect of the ecooimy it tends to be the weakness that is exploitd by the private sector. If interest rates are lower than they should be we will end up importing more running bigger cad and foreign borrowings and bidding up assets. Small actions by governments can lead to a rippleneffect of oerserve incentives. Government action should be to create a transparent and accountable framework on which free markets should sit on top (I.e enforce justice and law). However governments by interfering wit pricing have interfered with the system and its dynamics causing a whole bunch of side effects.

        why do you think cba and the other banks are loosing leading standards again? they know there is a government guarantee waiting for them should they fail. No other business has this opportunity or privelge.

      • +1 to Evan.
        Sorry Evan I didn’t read your comment, or at least didn’t realise what you were talking about, before posting.
        Economic Academia sure has a lot to answer for.

      • The ‘Academia’ is split between those who bashes Keynes, and those who worship Keyens. They’re keep fighting over the Great Depression while completely ignoring the real problem in front of them. There are exceptions (Steve Keen for example), but their contributions don’t usually make it into the main stream economic thoughts.

    • democracy involves debate about how a country should run.

      forcing someone to pay into the system gives that person the right to use the system. she never went ‘john galt’ and paid her taxes. therefore she used the system.

  4. LOL Arne, she probably also got PBS medicines and Meals on Wheels. All while railing against any forms of welfare and socialized medicine –

  5. There is a bias in your article SON. It dilutes your deeper message which I think is more important. Both sides of politics have been responsible for this mess we find ourselves. The reason is that they get seduced by power. They hide behind either competition (republicans) or cooperation (democrats) as the way to Utopia. The truth is most of them want to rule. This is such a pity that yet again collectively we have to go through this. Many times in history the solution has been found after many die. That solution is for the leaders to serve the people, not rule them.
    I could go further but suggest all each of us needs to do is look for the conflict that is within us and the solutions we, as individuals have found. The ones that have worked well in my life always end up being the middle way.

    Ohh and a country IS its people not its things, so can never be a business.

  6. ” the abdication of regulatory oversight”

    This premise is brought forward and is valid in many respects. However, what bothers me is the fact that regardless of any regulation, and its oversight and enforcement, the individual must still take responsibility for their own actions. Whether it is on the Macondo drill deck, in the executive offices of the TBTF Bank CEO, or the cook at the local dinner – each individual needs to understand the consequences of their decisions. Environmental. Social. Technical. Financial. Its all the collective action of many individual decisions. Collectively we’ve created this reality. The market behaves exactly as its participants bid/sell – figuratively and in reality.

    • The choices are made within the available options. The regulations are to constrain and encourage particular options. We need to exercise our choice in how we regulate also.

  7. This article is not taking a balanced perspective.

    When the writer claims that government is not inherently bad, and the business is not inherently good, then they reveal their ideology.

    The writer is assuming that human freedom and prosperity are not moral goods, and that is where I passionately disagree.

    The word govern means control. To govern is to prevent purposeful human action in pursuit of their aspirations to improve their situation.

    Economic freedom is inseparable from political and social freedom.

    It is a moral good, and an ends in itself.

    And more generally, I do not accept the false accusation that government is much maligned.. government is already seen as the saviour, the lender of last resort, the entity to bail out the crony corporations, the entity to save us from facing reality when markets move to correct the mistakes that were made.

    Until people grow up and stop turning to government to protect us, we will get more bail outs, more debt, more stimulus and more easy credit, and this crisis will be prolonged.

    • To Govern can also mean to influence, but regardless the real issue is that while the west considers itself to be a democracy ie: government FOR the people… the bureaucracies all practice and state that they are goverments OF their countries.
      all those freedoms are an illusion, it still boils down to the golden rule of ” He who has the gold makes the rules” coupled with the facts that 1. through greed and fear, people who believe they have power and control are easily corrupted in a desire to retain it, and 2. Shit floats.
      So here we are… a world where the markets are “free” to be run by greed and fear, gamed and gambled until the SHTF, and then free to blame the governments for mismanagement or lack of stimulus…. and us plebs are “free” to be gamed again and wear the consequences for the “free ” markets and those who govern, to whom we are now reduced to being either a “Consumer” or a “Taxpayer” in stead of being customers or citizens.
      Same ol’ same ol’…. the rich keep getting rich, while the poor will be left to die ….and the working class will keep working for the “luxury’ of life.

    • Ridiculous. I favor freedom, but show some discernment.

      A market _is_ its society. There is no invisible hand. Freedom is always in context of a social order.

      You can go out in the woods and live alone (if you can afford the land).

      But if you live in a society, then all you actions affect everyone else’s freedom. There is no such thing as a free market. Impossible. Imagining that government interferes with some idealistic fantasy of a free market is ridiculous.

    • “When the writer claims that government is not inherently bad, and the business is not inherently good, then they reveal their ideology.”

      I think that the writer is showing maturity.

  8. Free market system will succeed when somebody invents a vaccine against greed.
    .
    But then, Teatards like Michelle Bachmann will probably claim the vaccine causes mental retardation and rail against it.

    • +1 Mav
      Although I dare say the rejection will have been justified through some religious ideaology or vision lol

      shits me to tears when someone tries to tell me that their imaginary friend is better than mine 😉

    • There is a vaccine but government have taken it off the shelves for some privelged people – and that is fear. Fear of losing money, being bankrupt and poor.

      Thats what usually stops me making investments ; why not the banks and other players as well?

    • of course its only the free market that is greedy, those govt politicians arent greedy, you are not greedy…

      greed is part of the human condition no matter how noble or pius you believe yourself to be.

      A system that doesnt allow people unfair influence or ability to manipulate other people through their greed is preferable. So as long as you have unchecked govt expanding at rapid rates you will only increase the ability of people to exploit and satisfy their greed…

      welcome to world corporatism..

      I guess we are all just waiting for the right brand of marxism to kick in to lead us to salvation, right?

  9. I wonder how long will it take Stavros and others—our resident free market champion commenters—to say: “Are you citing Krugman? Krugman is an idiot, you are an idiot. I am right. Government is the problem, government is bad. It has to be, because I am so blinded by my ideology that I cannot see anything else.”

    • +1 .
      .
      Mind you, I am not in complete agreement with everything that Paul Krugman says – He seems to think monetary stimulus (by Helicopter Ben) will help the real economy, whereas the evidence suggests that it only helps blow asset bubbles beyond recognition.

    • “The most fundamental fact about the ideas of the political left is that they do not work. Therefore we should not be surprised to find the left concentrated in institutions where ideas do not have to work in order to survive.”

      makes me wonder who foots the bill that many people on this blog call an income

  10. The European system is broken and that’s what needs to be addressed.

    Research the EU rules of everything from employment, food production, personal freedoms, welfare, government control or almost all aspects of it’s citizen’s life, and then have a debate.

    The MEP’s have the best political gig of all time, and none really want a change to that. It’s about the power.

    Once you look at the EU legislation you’ll see my point.

    The G20 bailout being done now won’t address any of the fundamental problems.

      • You haven’t answered my question. Why has Germany grown faster even with all those EU bureaucracies and regulation + some more socialist welfare state policies (Government funded medicare) within its own borders?
        .
        An evidence based answer would be most welcome unlike your previous rethorical answer.

      • From my experience it’s more manufacturing focus, and at work the Germans (in my industry would work beyond the mandated 35 hrs). They are also more scientific and engineering focused.

        If you want to look at the stats this is a good site and I’ve chosen Germany and France.

        I didn’t mean to be blunt, but having spent a big part of my life working there I just assumed everyone knows the situation.

        http://www.tradingeconomics.com/germany/indicators

        http://www.tradingeconomics.com/france/indicators

      • Fair enough. The situation in the EU is dire, and the Germans IMO have done a great job working within/around the rules, but if they’re ever going to get back on track as a union there needs to be a big reset IMO; I’m not saying the Germans don’t have faults either I just saying what I experienced. I have a farmer friend also who is paid not to farm. The more you look the more dire it gets as far as the compliance against being successful as a business person.

      • The Germans were the biggest beneficiaries of a monetary union as they were able to take advantage of their manufacturing base and export into countries that were not shielded by a lower currency.

        Watch the fun with Germany going under as its neighbours endorse fiscal austerity.

  11. Tahoe58
    September 24, 2011 at 11:00 pm

    ” the abdication of regulatory oversight”

    ‘This premise is brought forward and is valid in many respects. However, what bothers me is the fact that regardless of any regulation, and its oversight and enforcement, the individual must still take responsibility for their own actions.’

    Absoloodle Tahoe
    The problem is a moral one.
    Unfortuantely as far as moral stances go anyone who deals with the detailGovernment regulations and institutions during their working day can tell you, that is is not only Bankers and some private industry who have poisoned our system. Individuals in Government now act in the interests of their own egos and financial well-being rather than the good of the community. Government in this country becomes more and more absolute. The Public Service is corrupted by political ideology and greed. Morality is thrown out the window even if their problem is only a bruised ego.
    As someone else wrote Governments now act for Govt and power not for the people.
    Again this is not defence of the Bankers et al. It is that if you now give more powers to the sort of morality that is now Government this is going to end up a special kind of hell.

  12. This would be the financial community that did not see the GFC coming; still don’t see the problem; still don’t recognise the consequences of what they propose; still have no real idea what to do.
    Government is indeed much like a business. Just imagine a business that is prepared to gradually sell off its assets to pay its high salaries and bills. That’s pretty close to what those with the ‘new insights’ propose.

  13. Sorry I forgot to post the quote I was referring to

    “As a number of bloggers on MB have pointed out, government finances are not like household finances, although they are often seen that way. That much is well understood in the financial community, although perhaps not as well in the wider public.’

    P.S. Thanks SON good article for thought despite my apparent contradictory comments.

  14. “Give a man a dollar, and you feed him for a day. Give a man a
    printing press, and you feed him for a lifetime”. But, unfortunately, ONLY ONE lifetime. In 1945, the USA was given
    the global printing press, as the USD became the global reserve
    currency. In 1971, as gold became untethered to the dollar
    when Nixon closed the gold window, the global reserve currency,
    and therefore all others pegged to or floating against it, became
    a pure fiat creation. This has VERY IMPORTANT implications, as
    Gresham understood already in 1650, that being that “Industry is destroyed at the source of money” The mechanics
    of how this works can easily be accessed by the interested reader. The result is always the same, an economy where
    exports wither, imports grow, and an increasingly high proportion of economic activity are devoted to servicing the
    1st, second and 3rd order beneficiaries of the money creation.
    Thus, Triffin’s dilemma, Baumol’s disease and the Dutch disease (or the 16th Century Spanish inflation inflation under
    he Hapsburgs) are all manifestations of the same ironclad
    rule. An qhat follows, while never identical, always rhymes.