Understanding economics without economists

EconomicsExplained

By Chris Becker

It’s a shame that something that effects our lives so much is so little understood, so polarised and captured by the politico-housing complex, yet is so ignored by the average person on the street, for little or no reason.

There is a lot of hope of course, since the foundations of mainstream economics has wilted away following the GFC. Books like these (and a classic like Steve Keen’s “Debunking Economics) will help push over the fetid pile all together.

From Cambridge economist Ha-Joon Chang, here’s a brief summary of his book and more from the website:

fivethings

Ha-Joon Chang also recently posted another list at Huffington Post, which he covers in more detail in a lecture thats embedded below:

1. Economics was originally called ‘political economy’

2. The Nobel Prize in Economics is not a real Nobel Prize

3. There is no single economic theory that can explain Singapore’s economy

4. Britain and the US invented protectionism, not free trade

5. Free trade first spread mostly through un-free means

6. It was arch-conservative Otto von Bismarck who introduced the first welfare state in the world

7. Capitalism did best between the 1950s and the 1970s, an era of high regulation and high taxes

8. The internet was invented by the US government, not Silicon Valley

9. Before tax and welfare spending, Germany and Belgium are more unequal than the US

10. Finland, one of the most equal countries in the world, has grown faster than the US

11. The ‘lazy’ Greeks are the hardest working people in the rich world after South Koreans

12. Switzerland and Singapore are not living off banking and tourism alone

13. Most poor people don’t live in poor countries

Australian watchers particularly take note from the 13:30 minute onward mark, and the last comments are reserved mainly for the domestic bank economists.

.

 

 

Latest posts by Chris Becker (see all)

Comments

  1. Is economics a “science” … or much of it just common sense ? …

    Why do so many economists misread housing bubbles … a few of my thoughts back in 2009 …

    Housing Bubbles And Market Sense | Scoop News

    http://www.scoop.co.nz/stories/BU0901/S00046.htm

    … and recently … quantifying New Zealand’s housing bubble (it aint hard) …

    New Zealand’s Bubble Economy Is Vulnerable | Hugh Pavletich | Scoop News

    http://www.scoop.co.nz/stories/HL1404/S00166/new-zealands-bubble-economy-is-vulnerable-hugh-pavletich.htm

    • Hugh PavletichMEMBER

      Extract from Housing Bubbles e& Market Sense above …

      An excellent brief article Perhaps Economists Should Be Picking Vegetables by Efrain Rojas, outlines the story of his poor parents, who were smart enough to avoid the bubble prices of California – only recently purchasing two houses there with no mortgages. Mr Rojas states –

      “It was abundantly clear to them that the housing market was insane and due for a catastrophic collapse, based upon the anecdotal evidence they saw around them i.e. half million dollar homes in places where people were lucky to make $10/hr. If you were an economist and did not see this coming, you should seriously reconsider the value of your education and maybe do something with a tangible value to society, like picking vegetables”.

    • Picking bubbles are easy. But picking the timing or the catalyst for the pop is almost impossible. It’s more fun being bullish. Horns up!

  2. “something that effects our lives”
    affects

    When I subscribe I expect a 10% discount for subbing and punctuation help.

    • OutbackTrader

      They shouldn’t be worried about punctuation – we all know what they mean. They’re going to save us all much more that $9.00 if they focus on economic analysis and leave the well edited but poorly considered trash to the MSM.

  3. sbinderMEMBER

    Insert economist joke here. My preferred being, an economist is someone who sees something working in practice and tries to find out if it works in theory.

  4. “I have long been of the view that, whatever there is to be said for and against–and there is a lot on both side–economics departments and subdisciplines as the right modality for organizing groups of scholars, and economics Ph.D.s as the right way of training a new professional scholars, two things are very, very clear:

    We have no business throwing applied-math majors into an economics Ph.D. program. Both a liberal arts mora-philosophy B.A. or equivalent and two years out in the real world working at a job of some sort should be required.

    We have no business offering a narrow economics B.A. at all. At the undergraduate social-science level, the right way of organizing a major curriculum is to offer some flavor of history and moral philosophy: enough history that students are not ignorant, enough sociology and anthropology that students are not morons, and enough politics and philosophy that students are not fools. (And, I would say, a double dose of economics to ensure that majors understand what is key about our civilization and do not get the incidence of everything wrong.)

    Let me postpone (1) to some future date and talk about (2):

    I think that modern neoclassical economics is in fine shape as long as it is understood as the ideological and substantive legitimating doctrine of the political theory of possessive individualism. As long as we have relatively-self-interested liberal individuals who have relatively-strong beliefs that things are theirs, the competitive market in equilibrium is an absolutely wonderful mechanism for achieving truly extraordinary degree of societal coordination and productivity. We need to understand that. We need to value that. And that is what neoclassical economics does, and does well.

    Of course, there are all the caveats to Arrow-Debreu-Mackenzie:

    The market must be in equilibrium.
    The market must be competitive.
    The goods traded must be excludable.
    The goods traded must be rival.
    The quality of goods traded and of effort delivered must be known, or at least bonded, for adverse selection and moral hazard are poison.
    Externalities must be corrected by successful Pigovian taxes or successful Coaseian carving of property rights at the joints.
    People must be able to accurately calculate their own interests.
    People must not be sadistic–the market does not work well if participating agents are either the envious or the spiteful.
    The distribution of wealth must correspond to the societal consensus of need and desert.
    The structure of debt and credit must be sound, or if it is not sound we need a central bank or a social-credit agency to make it sound and so make Say’s Law true in practice even though we have no reason to believe Say’s Law is true in theory.

    An adequate undergraduate economics major will spend due time not just on the excellences of the competitive market equilibrium but on these 10 modes of market failure, and in so doing become, effectively, a history and moral philosophy major as well.

    A first-rate undergraduate economic major will also spend due time on government failure and bureaucratic failure, and thus reach the very economic conclusion that there are substantial trade-offs, and we must pick our poison among inadequate and imperfect alternatives, even in institution design.”

    http://equitablegrowth.org/2014/06/18/thoughts-robert-skidelskys-manifesto-reform-anglo-saxon-economics-curriculum-wednesday-focus-june-18-2014/

    Skippy…. that and Philip Mirowski’s vinaigrette – “In his book Never Let a Serious Crisis Go to Waste , Mirowski concludes that neoliberal thought has become so pervasive that any countervailing evidence serves only to further convince disciples of its ultimate truth. Once neoliberalism became a Theory of Everything, providing a revolutionary account of self, knowledge, information, markets, and government, it could no longer be falsified by anything as trifling as data from the “real” economy.”

    • “In recent decades, urban planners have been inventing all sorts of abstract objectives to justify their plans for our future cities: smart growth, liveability, and sustainability are among the most recent fads.

      There is nothing wrong, of course, for a city to be smart, liveable, or sustainable.

      But for some reason these vague and benign sounding objectives often become a proxy for imposing planning regulations that severely limit the supply of land, resulting in ever higher housing prices. They also reduce the ability of cities to cope with their residents’ transport needs.

      New York University senior scholar Alain Bertaud, himself a former principal urban planner at the World Bank, argues that it is time for planners to think again. They need to abandon abstract objectives and focus their efforts on just two measurable outcomes: citizens’ mobility and housing affordability.

      Read … Alain Bertaud Introduction …

      2014 10th Annual Demographia International Housing Affordability Survey

      http://www.demographia.com/dhi.pdf

  5. A few comments. Back before economics was called “political economy”, there was a branch of philosophy called “dialectics”. This term has been used to express two things; a method of argument, and the way society evolves.

    Dialectics as a study, involved trying to work out the processes of action and reaction by which things changed in society. It recognised “consequences” and “chains of events”.

    I like the assertion in the above article, that economics is basically common sense. It is also “evidence based” – or should be.

    I think Ha-Joon Chang is probably one among numerous opinionated people on economics who are blind to the role of “culture”. Of course Scandinavian countries can have economic growth along with less inequality than most. So can Japan. Both have supermajorities of a single culture that is strong on the ethics of work and personal responsibility.

    The extent to which a nation is multicultural will be a causative factor in inequality. And some cultures themselves tend to inequality, which is obvious when a nation has a supermajority of that culture and is extremely unequal. Cultures in this category tend to be weak on the ethics of work and personal responsibility and strong on “fate” and “Karma”.

    Compare the folk tales of Dick Whittington and Aladdin.

  6. concerned cynic

    1. Economics was originally called ‘political economy’
    ME. Very true, but so what?

    2. The Nobel Prize in Economics is not a real Nobel Prize
    ME. Very true.

    3. There is no single economic theory that can explain Singapore’s economy
    ME. Wrong: the theory that “explains” Singapore is Plato’s Repblic and Laws.
    Singapore is a splendid pivot point in southern Asia. Basic considerations in location and transport economics predict a major city at that location. Singapore has silently accepted a lot of British common law of property and contract. The common law is very friendly to economic development.

    4. Britain and the US invented protectionism, not free trade
    ME. The USA indeed has a long standing protectionist heritage. When the USA complains of protectionism, it is being hypocritical.

    5. Free trade first spread mostly through un-free means
    ME. The British adopted free trade voluntarily starting with the 1846 Corn Laws. Free trade spread mainly out of a desire to imitate the UK example.
    A great many good things have shabby and accidental historical origins, including religious denominations, the common law, the Industrial Revolution, and representative democracy. If the same is true of free trade, that’s par for the course.

    6. It was arch-conservative Otto von Bismarck who introduced the first welfare state in the world
    ME. Completely true. But recall the dedication to Hayek’s Road to Serfdom: “To socialists of all parties”. There are socialist and social democratic tendencies all over the political spectrum. And not all conservatives are friends of the business interest. Russell Kirk was a case in point.

    7. Capitalism did best between the 1950s and the 1970s, an era of high regulation and high taxes
    ME. It is true that over 1948-73, the OECD nations experienced the fastest growth ever measured in those countries. It is also true that top marginal rates of personal and corporate incomes taxes were weirdly high then, even confiscatory. The reason for these high growth rates was the recovery from WWII and the Depression, which resulted in 15 “lost years”. 1931-53 saw very few new office buildings or retail spaces built in most of the USA. What was built was mostly ugly, spartan and cheap.

    Wealthy Americans endured confiscatory tax rates in fair part because they saw high taxes as paying for the Cold War, which was very popular at the time. I lived through most of the Cold War.

    The economy was much regulated back then, but do keep something in mind. Government regulators did not have large enforcement budgets, and collecting and policing large data sets did not become feasible until large mainframes became routine around 1965. I submit that the regulatory regime of the period 1933-1965 was mostly a paper tiger. When violations were detected, a government department would write a cease and desist letter. Compliance was heavily self-enforced and voluntary compared to nowadays.

    8. The internet was invented by the US government, not Silicon Valley
    ME. Wrong. The internet was invented by the British physicist Tim Berners-Lee. Moreover, the electronic hardware making the internet possible, and HTML and related software, were most definitely invented by American IT entrepreneurs.

    9. Before tax and welfare spending, Germany and Belgium are more unequal than the US
    ME. There is no comprehensive data on the size distribution of American household incomes, net of tax and gross of welfare spending. Hence the comparison asserted in (9) cannot be made.

    10. Finland, one of the most equal countries in the world, has grown faster than the US
    ME. Only 2 OECD countries have grown more slowly, 1950-present, than the USA: Switzerland and New Zealand. The USA grows slowly, not because it is unequal, but because growth in the USA has to be achieved the hard way: via innovation.

    11. The ‘lazy’ Greeks are the hardest working people in the rich world after South Koreans.
    ME. Greeks are lazy because of their absurdly generous pension schemes, their bloated public sector, and the reluctance of closely held business with cash sales to pay income tax.

    12. Switzerland and Singapore are not living off banking and tourism alone.
    ME. Of course. But what are you getting at?

    13. Most poor people don’t live in poor countries.
    ME. What on earth are you talking about?

    • Your 13. The statement probably recognises that most poor people live in rich countries with a concentration of that wealth with a tiny minority. Perhaps Nigeria, and even Zimbabwe, are examples.

      • concerned cynic

        The vast majority of truly poor people live in Third World countries where GDP per head of population is under $20/person/day. Cases in point:

        Iraq, Egypt, Indonesia, Congo, Philippines, India, Pakistan, Nigeria, Bangladesh, all of sub-Saharan Africa except Botswana, Gabon and South Africa

        Large numbers of poor living in countries that are not truly poor include Brazil, Mexico, South Africa, and China.

        http://en.wikipedia.org/wiki/List_of_countries_by_GDP_%28PPP%29_per_capita

    • The Internet was NOT invented by Berners-Lee.

      The Internet was a 1969 project called ARPAnet and the US Defense Dpt created it.

      In fact Silicon valley as we know it would not exist without the US gvt as they needed chips for the space progam which underwrote the bank’s investment in the sector.

      TBL created http.

      • concerned cynic

        What did ARPANET do beyond Email?
        It is my understanding that the current internet owes a great deal to Tim Berners-Lee’s vision at CERN, and very little to ARPANET.

        It is true that Fairchild Semiconductor and Texas Instruments did a lot of defense procurementt in the 1950s and 60s. But do not jump to the counterfactual conclusion that “but for” the Pentagon’s procurement policies, the hardware for the IT revolution would never have come into being. The Cold War made nothing possible, only made them happen sooner.

      • One of the crucial things in all this is how a technology is “commercialised”. If the Soviets invented anything (like, say, Velcro was invented by the US Space Program) did it end up reaching the entire population in an affordable form?

        Capitalism wins hands down on this important point.

    • The Internet was NOT invented by Berners-Lee.

      The Internet was a 1969 project called ARPAnet and the US Defense Dpt created it.

      In fact Silicon valley as we know it would not exist without the US gvt as they needed chips for the space progam which underwrote the banks’ investment in the sector.

      TBL created http.

  7. concerned cynic

    1. 95% of economics is common sense.
    ME. Make that “at least 60%”. What is not true is the “commonness” of “common sense”. Common sense is in fact uncommon. This is most true whenever the Three Controversial Topics are concerned: Sex, Money and Power. Note that it took the Russians 75 years to abandon Leninism, which they have replaced with Peronism. Easy oil and gas wealth has delayed indefinitely the economic and political transformation Russia needs to undergo./

    2. Economics is not a science.
    ME. It is not a science like chemistry or physics. But it is more scientific than the other social sciences. It is about as scientific as population biology, with whom it shares a common toolbox: noncooperative game theory.

    Economics has a lot of data, and were it not for privacy, the available data would be much greater. Economics also has a large toolbox for analysing and interpreting data. Economists embrace Popperian falsifiability in theory, but do not practice it well. However, there are failed research agendas in economics, in that people stop writing papers about X.

    3. Economics is politics.
    ME. And politics is also economics. When political scientists adopt the “rational actor model,” the two disciplines have the same methodological core, and the same mathematical toolbox: calculus, algebra, graphs, game theory, statistics.
    Do not conclude that from the equation “Economics = Politics” once can conclude that anything is achievable given sufficient political will. This is the great error of 20th century totalitarians.

    4. Never trust an economist.
    ME. Far too few economists warned that irresponsible lending practices, 1998-2007, would result in an economics meltdown adversely affecting the entire North Atlantic and Mediterranean. And the reason is that no one loves a Cassandra. To denounce lax mortgage underwriting was seen as condemning millions of lower income households to the “indignity” of living in rented housing. I condemned LVRs > 90%, teaser rates, and house prices > 4x household incomes, but was dismissed as a puritancal Scrooge.

    5. Economics is too important to be left to economists.
    ME. This is an update of “war is too important to be left to generals”. Both statements are true, and are major reasons why a decent society is a representative democracy.
    But this statement is not a reason to disregard economic advice. It is a reason to rule out a benevolent dictatorship by economists. I agree that many economists have a tin ear about political realities, about the role of base emotions (e.g., envy) in shaping policy, and are ignorant about the importance of business law as a grounding economic institution.

    • No.4

      “….Far too few economists warned that irresponsible lending practices, 1998-2007, would result in an economics meltdown adversely affecting the entire North Atlantic and Mediterranean. And the reason is that no one loves a Cassandra…..”

      And that applies to a LOT of things. I would say that MOST economics graduates end up in jobs where actually providing the truth to the paying client would simply result in no further work, and probably the burying of the original work itself, to be redirected to a more tame consultancy firm.

      A really illustrative case in point is consultancy work on rail based public transport projects.

      Wenling Chen’s paper “Analysis of Rail Transit Project Selection Bias” is excellent, and its list of references would provide someone with an entire Doctorate thesis’ worth of further study.

      And watch this video:

      http://www.youtube.com/watch?v=aOtcHh34tcg

      Scott Rutherford, a University of Washington civil & environmental engineering professor who served on -and once chaired- the ‘Expert Review Panel’ overviewing the examination of High Capacity Transit planning in the three-county Puget Sound (Tacoma-Seattle-Everett) area. He makes some candid and damaging admissions before this Transportation seminar at Portland State University in January of 2003.

      Memorable moments:

      21 secs “I can’t think of any place that I went where the client didn’t know what they wanted before they started the study.”

      52 secs “I forget what what happened but it just fizzled” [re: pro-active analysis of bus vs. rail]

      1 min “As soon as the more powerful policymakers decided that rail was it, it was it.”

      7 mins 50 secs “I always thought when I was out there watching this, someone’s going to go to jail……”

    • Also re No. 4:

      There is a fairly substantial roll of honour of people who DID see 2007 coming:

      http://investorhome.com/predicted.htm

      But has anyone of any significance in political circles bothered to turn to any of these people since, for advice about fixing the mess or avoiding a recurrence – or appointed any of them to positions of authority, eg at central banks…….?

      • concerned cynic

        I cannot think of any one who had a good understanding of mortgage underwriting practice since WWII, who clearly saw that subprime underwriting was suicidal because of massive moral hazard, and went public with that warning.

        When I learned of NINJA mortgages in 2004, I clearly saw them as suicidal. When in 2006, I learned that in the 6 English speaking countries, 30-50% had no downpayments (42% in New Zealand), I saw that too as suicidal. But I did not air my thoughts in public, mainly because not being in the mortgage industry, I did not have the whole picture, and felt that I could be very easily shot down by anyone with a better command of the institutional details.

        When I told my colleagues that LVR > 80% was disturbing, and that as the LVR approached 100%, the economy was on thin ice, certain colleagues of mine told me that there was no evidence for my view. When everything crashed in 2008-09, no one told me that I was right after all.

      • To précis “..in 2006, I learned that 42% in New Zealand had no downpayments, I saw that too as suicidal. ” As a New Zealander I can say that ‘we saw it’! We ramped the cash rate up to 8.25% ( from about 5%) and the residential property market came to heel. Then…the GFC got in the way! It let the property market dogs off their leash and today we have a repeat mess. Again, “we see it!” but having been let loose once, and so recently, the property animal-spirited know…it’s only a matter of time until they can run free, again… Suicide? Most certainly. But sadly, more likely homicide for the many who believe that property ‘wealth’ is their best friend….

      • People should remember that sub prime was not the root problem, deregulation was, to include all credit issuance. Liquidity freezing up was just an acknowledgement by industry IB/CB as to how baddddd everyone’s assets were [overnight rollover music stops welcome to the GFC].

        Ref. politicians, most are a second derivative to the power that shaped events over 40ish decades and not the driver of them.

    • “no one loves a Cassandra”

      Spot on, concerned cynic. The fundamental flaw in democracy.

      Take the OZ housing bubble for example. The time to introduce macro prudential tools was back in the early 2000s when soft landing was possible. But then nobody would have liked you to spoil the party when the problem was not obvious and so far away in the future.

      Introducing macro prudential tools now, on the other hand, would prick the already-too-large-to-achieve-soft-landing housing bubble. The act would be too obviously seen as causing the crash.

      Of course, pricking the bubble is not the real problem; inflating the bubble in the first place is. But then again, the public is not intelligent enough to understand that.

      • Hugh PavletichMEMBER

        Dumpling … why would the Aussies attitudes to housing bubbles be much different to those of Kiwis ?

        The New Zealand Herald poll on this issue noted below is most helpful.

        I suspect the Aussies think much the same. The only differences are that (a) the Kiwi media is far more diligent on housing issues and (b) NZ does not have the control by the political, commercial and media elites to the same extent as Australia.

      • Hugh,

        I do not know enough about NZ housing bubble. If it is of similar size (relatively) as the OZ bubble (i.e., too large to achieve soft landing), then I think what will happen is the same as in here.

        In my view, it is essentially stalemate. The authority may try to engineer orderly deflation of the housing bubble, but then at some stage will come to realize that it is impossible to achieve soft landing. Of course, there are a few political tricks to massage public expectations and/or blame the negligence of the predecessors in charge, but the available moves are very limited indeed.

      • PS

        Introducing macro-prudential tools now will only bring the forthcoming crash sooner rather than later. The ensuing damage will be smaller the sooner the burst, but that is not something one can prove. It will be a tough sell to the public.

        The RBA will face essentially the same dilemma as in the early 2000s when introducing macro-prudential tools could have achieved soft landing; an unpopular but nonetheless necessary action would not have been *seen* as necessary, precisely because the disaster it would have prevented would never materialize.

        Likewise, limiting the damage by bringing the crash sooner will not be *seen* as damage control.

  8. NEW ZEALANDERS FEARFUL OF HOUSING BUBBLES …IMPORTANT NEW ZEALAND HERALD POLL

    Despite boost to net worth, not all owners thrilled with runaway housing gains … New Zealand Herald

    http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=11278533

    Almost half of New Zealanders who own their own homes are worried about rising house prices despite the fact those increases are boosting their net worth.

    Of those surveyed by the Herald this month who said they owned or were paying off their own homes, 16.8 per cent said they were extremely worried by rising house prices and 33.1 per cent said they were a little worried. Of those who didn’t own homes, 35.7 per cent were extremely worried and the same proportion were a little worried.

  9. Hugh PavletichMEMBER

    (Bank of England Governor) Mark Carney told to rein in mortgages – UK Telegraph

    http://www.telegraph.co.uk/finance/bank-of-england/10917307/Mark-Carney-told-to-rein-in-mortgages.html

    … excerpts …

    “The Bank of England must act quickly and decisively to rein in UK mortgage lending if it is to prevent another housing crash, two of Europe’s top policymakers have warned …”

    “ … Mark Carney, the Bank’s Governor and chairman of the Financial Policy Committee (FPC), which is in charge of financial stability, is expected to unveil measures this week designed to stop the economy from boiling over.”

    “Some believe Mr Carney will go a step further and cap the amount people can borrow as a multiple of their income. State-backed lenders Lloyds Banking Group and the Royal Bank of Scotland have already limited mortgage lending on loans above £500,000 in a bid to cool the London market.”

    EARLIER REPORTS …

    Mark Carney indicates rates will go up by the end of the year. Bank of England given stronger powers on mortgage eligibility rules.. Daily Mail suggests a limit of 3.5 times incomes may be in the cards.

    http://www.theguardian.com/business/2014/jun/12/george-osborne-mansion-house-bank-england-powers-curb-mortgages-bubble-economy-interest-rates

    http://www.dailymail.co.uk/news/article-2656639/Interest-rates-rise-end-year-hints-Bank-chief-Osborne-paves-way-cap-mortgages-annual-Mansion-House-speech.html

  10. concerned cynic

    The Reserve Bank of New Zealand computes the yearend balance sheet of New Zealand households. This balance sheet omits a number of assets, and one omission is material and disturbing: the value of farms. My summary of the balance sheet for yearend 2013 follows. %s are of net worth.

    Net Worth = NZ$768B.

    Housing 94%
    Mortgages on housing -25%
    Other liabilities -4%

    Deposits 17%
    Other financial assets 18%

    Housing equity is 69% of reported household net worth. This asset is also very diffusely held. These two facts may explain why NZ politicians and central bankers are very reluctant to prevent house price bubbles, and to prick them when they happen.

    • concerned cynic

      The only household sector balance sheet I know of, and can access via the internet, is that of the USA, Table B.100 in Release Z.1 of the USA Federal Reserve Bank. In the USA, gross (net) housing equity is only 30% (15%) of household net worth. Financial assets other than deposits, are 75% of net worth. In New Zealand (USA), private superannuation funds are 6% (40%) of household net worth.

      There’s the rub. Kiwis save for old age by acquiring an owned home and maybe a handful of rented houses. Americans save for old age by holding corporate equities, debentures, term deposits, and debt owed by the Federal govt.

      • concerned cynic

        Kiwis live like Americans did in the 1920s: put spare money in a banks or building society savings account, try to own a house. Few Kiwis have material ownership in the market economy that surrounds them, except as farmers and proprietors.

        American homes are excessively leveraged, but there is hope in that total mortgages owed have been level since 2009. Americans own, by and large, the large market and corporatised economy they live in. This ownership is not as widely diffused across households as many of us would prefer. Despite enjoying the richest range of financial products of any economy, and the availability of quality financial advice, Americans as a whole are not a thrifty people, unlike the Japanese and Germans. Most American saving takes the form of retained profits of firms.

        Unsophisticated investors should save for retirement by investing in share and debenture tracker funds. This is impossible to do in New Zealand, because its industrial base and share market cap are too small, and Australian tracker funds subject one to exchange risk.