Category Archives: World Economy

Ivory Towers and Other Fantasies

As someone who’s appreciation of economics has absolutely no formal basis, I find the current debate about the Rogoff-Reinhart controversy quite surreal. Here are all these economists on both sides of the argument, discussing the relative merits of one form of analysis, versus another, and minimising or exaggerating the effects of a spreadsheet error. This issue is not an abstract philosophical discourse. The issue of how we view our society is of fundamental importance to every person in the world. Trust in our advisors is particularly relevant to Western democracies surviving. We have moved beyond the base economics, and we are talking about the shape of the Western liberal tradition. Over the last ten years or so, the rudder of Western Society has been firmly in the hands of the austerity driven economists, who, via the World Bank, via the ECB and via the Troika in Europe, have not only had the hegemony of policy, but also have esposed a monopoly on knowledge about the so called remedies for recovery. These policies have prevailed while 27 million people are unemployed in the E.U., and the wealth of middle class Europeans and Americans has dissipated.

Wile E. Coyote Business Card .. Genius .. Have...

Wile E. Coyote Business Card .. Genius .. Have Brain Will Travel .. Reverend Bill Proctor “stuck in Atlanta” (July 02, 2011) …item 4.. Comments are posted from viewers – We are not his preferred constituents (Feb 9, 2012 at 01:54 PM) … (Photo credit: marsmet523)

These policies bear no criticism. In the case of Ireland, this diminutive analysis portrays the entire Irish population as squanderers whose spendthrift ways are deserving of moral opprobrium and of the punitive austerity imposed as a remedy on the entire population. The fact that the gross excesses were limited to a minute proportion of the population, and there were many non-Irish players, including foreign banks with their snouts in the trough, does not seem to influence the Troika or the arbiters of the new order. The fact that much of the so called “Irish” debt was based in other countries, and not truly “Irish” in any real sense of the word, offers no respite. The undisputed fact that the recklessness of the banks contributed to the catastrophe, fails to provide any relief for the indentured population. Paradoxically, the only element of the population that is not suffering are the bankers, who continue their gluttony of bonuses and high salaries, while acting as the very agencies that are imposing penury on the general population.

So back to the debate over the R-R mistakes/omissions or whatever. The problem for me, an ordinary Joe, is not the semantics of the derivative implications of the subtle analysis that was presented. It was not the worry about the extrapolations of high financial equations. It was not even the arithmetic mistake that was made. It was however the sheer clumsiness, the appalling arbitrariness and the overwhelming subjective nature of the analysis that was most frightening. In my naivety, in my ignorance, I had always thought that economists dealt with the real economy. I considered that these people with their magic formulae, their alchemical spells, could conjure up, if not a view of the future, at least an understanding of the past. But oh! I was woefully wrong. The people who lay the fabric for the agenda of the rich and powerful, don’t do any of that. They decide for arbitrary reasons, to include or exclude countries from their analysis, they don’t bother to check for simple mathematical errors. They then defend themselves against criticism by saying that they were only small errors.

My problem, as a punter, is how the hell can I know what any of their prognostications mean. In fact, how can anyone know? I truly do not know anything of the mathematical formulae required to analyse economies. I know little of the nuances of Keynesian planning, though I understand enough to know that the wisdom of his thinking has been ignored in order to save the oligarchy of the financial elite.

What I do know is this – that the last five years have seen the greatest transfer of public wealth into private hands in the history if Western Society, the indenture of the whole population of the PIIGS countries, the decimation of the middle class, the dismantling of social services and the abolition of democracy in debt burdened nations. The banks have managed to privatise their profits and socialise their losses. Nations have not only lost the ability to decide on their own Government programs, but have had external programs imposed on them.

So what the nub of the problem for the man in the street is that the basis for all these austerity driven policies is not an analysis of tried and trusted methods of overcoming the debt crisis but rather the exact opposite. These programs are not only counter-sense, but they are an exact opposite of the methods that we have learned about dealing with recessions/depressions before. They are an attempt to create growth by shutting down economies. To raise taxes by strangling industry. To reduce social spending by increasing dependency. They fly in the face of the manifest truisms that you cannot create growth without a functioning economy, you can’t have an economy without cash flow, and you cannot have cash flow when you sacrifice individual effort in order to prop up failed financial institutions.

These counter-sense economic policies play straight into the neo-Weberian view of the world that economic collapse has a quasi-moral dimension to it, and that the nations who profited most by the European experiment in the terms of growth and centralisation of wealth are somehow on a higher plane than the peripheral economies that have floundered. Whatever truth there is in the supposition that the peripheal countries screwed up their economies independently of the centre (another manifest fantasy), the cure has nothing to do with the complaint. The cure is designed to tie those peripheral countries into a centralised low-inflation stangnant austerity that has nothing to do with stimulating growth. It has everything to do with economic dependency and indenture.

economics

economics (credit: Sean MacEntee)

This whole debate is not about a tweeking of an “Econ 101” freshman project. These data were presented as scientific fact, and a quick revision is not the solution. The basis of the austerity philosophy as applied to Europe is nationalist, pseudo racist, and highly questionable. It relies for intellectual legitimacy on the highly questionable views of the likes of Rogoff and Reinhart. So when you question how such philosophies have contributed to putting twenty seven million people out of work, you have to throw up when you find out that the whole basis of these concepts is faulty. Not only are the analyses subjective, arbitrary and variable, but you also find out that even the basic arithmetic is wrong. Closed prejudiced minds. Sloppy work, and sloppy thinking.

Reinhart and Rogoff – Responding to Our Critics – NYTimes.com

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Reinhart and Rogoff

“OH MY GOD, DARLING, I FORGOT TO MULTIPLY BY TWO!!!”

Economic Counsellor Kenneth Rogoff

Economic Counsellor Kenneth Rogoff (Photo credit: Wikipedia)

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English: carmen reinhart giving a speech in th...

English: carmen reinhart giving a speech in the university of maryland (Photo credit: Wikipedia)

Strange as it seems, the answer is probably “Yes”. The recent budget crisis that nearly threw the U.S. off the fiscal cliff and the austerity measures that have ensured no less that 27 million Europeans are on the dole have been hughly influenced by the work of economists Carmen Reinhart and Kenneth Rogoff. It now appears that there was a coding error in their data thereby causing the “Excel Depression” according to Paul Krugman.

Why do we have economists? -> to give astrologers a good name!

Apologies to Paul Krugman, who seems to be one of the only economist in the world talking sense at the moment.

It is clear that fiscal deficits cannot be extended indefinitely. However, such dogmatism that the world will turn on a pin is not helping recovery, but inducing fear, panic and reducing realtime activity, as people save and save, and banks hoard and hoard. Most of us live in a real world, not just an economy, and we need to get beyond management by spreadsheets that are full of unvalidated assumptions, hidden logic, and biased prejudices, not to mention arithmetic errors!

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Greed

A British Virgin Islands license place

A British Virgin Islands license place (Photo credit: Wikipedia)

Greed is Good, said Gordon Geeko

Well there seem to be a lot of good people around these days. In fact the ICIJ (the International Concortium of Investigative Journalists) has just come out with a list of the Great (or perhaps the Greed) and the Good. No less than 36,000 of them by some reports. Squirrelling their stash away in Tax Shelters around the World.

What’s wonderful about this is it is beyond race and creed. No country or society seems to be spared. No breeding nor domicile seems to matter. No politics or position matter. We have African Dictators, philanthropic art collectors, a president of a nation, several budget ministers, a top class lawyer who used stuff travellers cheques into envelopes, Irish bankrupts…. And there’s more to come…. This is going to run and run, and anyone who is anybody will be on the list… By contrast you’ll be nobody if you’re not! These people are the true pan-nationalists. They are in their own Club. They have evolved beyond the hubris of the squalid societies they live in and have graduated to a type of ethereal plain that is not subjected to the boredom of taxes, obligation and communities. These people believe in the zen of the moment. They trust in yachts, fine fine wines, silk sheets and servants. They are the Gods in the centre of the karma wheel, ignoring the hungry devils!

It really is an “us and them” world.

Now there is a bit of me that thinks that the average Joe (myself excepted, of course, being made of more moral fibre!!) would be doing just the same if he got the chance to join this elite, so perhaps it is too tempting for any Joe to resist. The problem is not that people use these centres, but more that the centres are available in the first place, and under the protection of such august countries such as Britain and Holland. So why haven’t they been closed down. Well we’re back to who is calling the shots again, aren’t we? If David Cameron does respond to the outcry about the British Virgin Islands and closes the whole place down, then all that money which is probably physically in the City of London, will try and fly off to some more accommodating place such as Singapore, and what will that do for his balance of Trade. Not to mention how many cronies, donors and fellow parliamentarians actually have accounts there …..?

What ever happens, there has been a can of worms opened here and it’s going to be good sport seeing where it gets to!!!!! We’ll have a look at a few of the principles in subsequent posts!!

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