Global financial system implosion begins

[Dr Jon]

I wonder how much tungsten they get?

Probably none:

At a packed press conference attended by armed security guards, Bundesbank officials demonstrated how they test the bars for quality and authenticity. No two bars have exactly the same weight and purity, so each must be assessed separately.

link

I guess they gave the Tungsten to Chavez...

 

[ymu]

That's just reporting conspiranoid nonsense uncritically, alongside some of the facts which show why it is conspiranoid nonsense.

This is what happens when highly paid nonsense-mongers are allowed to hijack the economic debate. Lazy hacks know not what to think, so they don't.


E2A:

.

You edited.

 

[Dr Jon]

E2A: You edited.

Yeah.
Despite the story appearing on a mainstream news site, their source was decidedly dodgy.

 

[Frank Merton]

What almost no-one grasps, because almost no-one can conceive of it, is how the financial system behaves once it is no longer infinite acting with respect to energy supply.

To be British for a moment and to respond to you the way you tend to respond, that's Bullocks. The energy supply has never been infinite; if it were it would be free.

 

[ymu]

Don't be silly. Solar power is (to all practical intents and purposes) infinite but most definitely not free. There's work involved in turning any source of energy into a usable form, and that work has to be paid for. The price of everything we buy is ultimately determined by the amount of work required to get it to the purchaser.

When I lived on a tropical island, bananas, coconuts, mangoes and fish were 'free' because they were easily accessible and owned by no one (and I don't need to pay myself a wage to collect them). In the UK, I have to pay for these things.

 

[Falcon]

To be British for a moment and to respond to you the way you tend to respond, that's Bullocks. The energy supply has never been infinite; if it were it would be free.

The assumption that it is infinite - i.e. its current form can be substituted by other forms without limit - is an explicit assumption of neoclassical economics. That is to say, the economic paradigm underpinning neoliberal capitalism. It is the only way that the other axiomatic (and deranged) assumption that is neoliberal capitalism's stability criterion - perpetual growth - can be rationalised.

A familiarity with the subject helps.

 

[Frank Merton]

A familiarity with the subject helps.

Why do you think I am unfamiliar with the subject?

 

[ymu]

Why do you think I am unfamiliar with the subject?

From what you post. Suspicion heightened by your refusal to read sources that challenge your existing beliefs.

 

[Frank Merton]

From what you post. Suspicion heightened by your refusal to read sources that challenge your existing beliefs.

I've explained why I don't credit web sites the people use already, so why should anyone be bothered to waste their time on them. A news report used to get a thread started is fine, if it is from a credible source and properly qualified, but as "proof" of some position they are worse than useless.

I get the feeling that in economic matters there are some pretty deadheaded views around here that just can't see anyone seeing things differently. I am officially a Communist, and was one in spirit for a long time, but the party and Vietnam have evolved into a mixed economy, and I support this evolution strongly, having see what a little market economics can do.

I have had my obligatory economics class when I went to the States for college. It was enough, combined with all the Hegel and Marx one gets here (although this is less economics than human psychology applied to economics).

My difference of opinion seems to be mainly on the undeniable fact that oil is a finite resource. The difference is that I don't see the nostrums being pushed doing anything but harm. Let natural forces have their way, with subsidies and special taxes here and there -- mainly for ecological rather than economic purposes.

This business of accusing others of being ignorant when in fact they are not achieves very little in persuading them to change their opinion.

 

[ymu]

You explained why you don't read sources in precisely those terms the first time this came up. You never did explain why a Nobel prize winning economist whose predictions about the course of the financial crisis have been pretty much spot on is not a credible source in your eyes. He's not popular with financial economists, and micro-economists are baffled, but they're not macro-economists, which is why they called it wrong and he called it right.

Where did you study economics in the US? It makes a massive difference. I studied it as (a very small) part of a joint honours degree at Oxford and am amazed at the bullshit I'm hearing these days. If you're interested in knowing why, you'll have to read some Krugman. Sorry about that.

How Did Economists Get It So Wrong?

 

[toblerone3]

As always very interesting discussion on this thread. Don't feel that Falcon has proved his point but his argument is interesting all the same. The themes on this thread are an incredibly complex mesh technical and political issues and our understanding is still limited. But I am beginning to think that this debate is the way forward towards a new version of Das Kapital or something.

 

[Frank Merton]

You never did explain why a Nobel-prize winning economist whose predictions about the course of the financial crisis have been pretty much spot on is not a credible source in your eyes. He's not popular with financial economists, and micro-economists are baffled, but they're not macro-economists, which is why they called it wrong and he called it right.

Where did you study economics in the US? It makes a massive difference. I studied it as (a very small) part of a joint honours degree at Oxford and am amazed at the bullshit I'm hearing these days. If you're interested in knowing why, you'll have to read some Krugman. Sorry about that.

A Nobel prize is a nice thing to have on one's resume, but quotes from such figures are kinda like Bible-thumpers quoting scripture. Since you specifically ask, I took one economics course (hardly qualifies me as an expert) at Harvard. I would say that my subsequent career has better enabled me to form informed opinions about economic and energy matters, as I work for a large construction/engineering company that has offices throughout North America and most of Asia.

Unfortunately I've been laid up for a few weeks and may be forced to retire (heart disease stemming from underlying diabetes). This is what brought me to be on this board so much, and it has been interesting and helpful. If nothing else the differences between American and British English have become much more clear in my head.

 

[ymu]

Business is micro-economics. National economies are macro-economics. Failure to understand that these are entirely different disciplines is what caused this crisis, and the crisis in 1929.

Which is why you need to do some reading, critique and compare sources, look at who is funding them (and whether they appear to earn more than the average academic).

A Nobel Prize doesn't mean infallibility. It does mean you'll have to do some homework if you want to dismiss the source as not credible.

 

[littlebabyjesus]

Hmmm. Milton Friedman won a nobel prize.

 

[Frank Merton]

Business is micro-economics. National economies are macro-economics. Failure to understand that these are entirely different disciplines is what caused this crisis, and the crisis in 1929.

Which is why you need to do some reading, critique and compare sources, look at who is funding them (and whether they appear to earn more than the average academic).

A Nobel Prize doesn't mean infallibility. It does mean you'll have to do some homework if you want to dismiss the source as not credible.

Business experience is what it is; we all also live in society and read books and newspapers and so on. Who funds something should be revealed, but doesn't really influence my attitude toward them. What someone says is more important than who they are, let alone who is funding them. I tend to look at the actual material and read it carefully rather than worry about who they are or who they are associated with.

These are all broad generalities no doubt with exceptions. My main point is that, just as it is bad form to try to make doctrinal points by thumping scripture, it is just as invalid to try to make any sort of point by relying on someone else's opinion, no matter who they are. Let the opinion speak for itself. There is a great statement of the Buddha to that effect, but I will refrain from Buddha-thumping too.

 

[BigTom]

Business is micro-economics. National economies are macro-economics. Failure to understand that these are entirely different disciplines is what caused this crisis, and the crisis in 1929.

Which is why you need to do some reading, critique and compare sources, look at who is funding them (and whether they appear to earn more than the average academic).

A Nobel Prize doesn't mean infallibility. It does mean you'll have to do some homework if you want to dismiss the source as not credible.

The first sentence here is such a massive point I think, what seems right on a micro level so often ends up being wrong on a macro level, I think the minimum wage stuff is a good example, opposed by free market economics because it looks on a micro level and sees firms costs being pushed up -> profits down (or inflation), but at a macro level, increasing wages (especially at lower incomes) leads to an increase in spending (because the marginal propensity to consume is higher at lower income levels, as you get richer money tends to be saved or invested). This is an increase in demand (and also increases the speed of circulation of currency), which means more sales and thus more profit. Henry Ford discovered this for himself back in the 1910s or 20s when he raised the wages of his workers to $5/day to reduce staff turnover and found himself making more profit because now his workers could afford to buy his products so he sold more.
ime, sadly, the libertarian hegel/von mises/friedman followers seem unable to really comprehend the macro arguments, whilst keynesians can get to grips with the micro stuff quite happily, just give primacy to the macro stuff - which is generally based more in empricial evidence than the heavily theory led micro stuff ime.

 

[Frank Merton]

I think the minimum wage stuff is a good example, opposed by free market economics because it looks on a micro level and sees firms costs being pushed up

I don't know of any country that doesn't have a minimum wage law, and this is sensible so long as it isn't set so high that it generates unemployment and widespread under-the-table working.

 

[littlebabyjesus]

I don't know of any country that doesn't have a minimum wage law, and this is sensible so long as it isn't set so high that it generates unemployment and widespread under-the-table working.

Sweden. Instead they have a series of agreed industry minimums negotiated by the unions.

 

[ska invita]

I don't know of any country that doesn't have a minimum wage law, and this is sensible so long as it isn't set so high that it generates unemployment and widespread under-the-table working.

i would have thought the majority of the world doesn't have a minimum wage. we only got it in the uk recently (against heavy opposition from the traditional right)

 

[ymu]

Business experience is what it is; we all also live in society and read books and newspapers and so on. Who funds something should be revealed, but doesn't really influence my attitude toward them. What someone says is more important than who they are, let alone who is funding them. I tend to look at the actual material and read it carefully rather than worry about who they are or who they are associated with.

These are all broad generalities no doubt with exceptions. My main point is that, just as it is bad form to try to make doctrinal points by thumping scripture, it is just as invalid to try to make any sort of point by relying on someone else's opinion, no matter who they are. Let the opinion speak for itself. There is a great statement of the Buddha to that effect, but I will refrain from Buddha-thumping too.

Well, I work in medical research, and the first thing we do is check the source of funding. It is intensely naive to say that it does not matter. The major medical journals won't even publish industry-funded research unless the authors are contractually independent from the company (ie owners of the data and free to publish regardless of what the company wants).

We do then scrutinise the content very carefully indeed. The purpose of looking at funding sources is to compare the manufacturers results with those of independent researchers. It's quite an eye-opener. Ben Goldacre's Bad Pharma is all the education you need here. There are some extracts in the Guardian if you don't want to buy the book.

I'm not sure what you mean by 'relying on someone else's opinion', but if you mean 'credible expert sources', how else are you going to form opinions about incredibly complicated subjects? I do medical research, but I cannot possibly research every medicine myself. If it's not a topic I'm personally involved in, I go to credible sources and people I consider competent in the field. I don't ask the manufacturer what they think because they are proven liars who are happy to kill people for profit.

Economics suffers from exactly the same problem. It's not physics. If Sony make a new kind of TV, their science has to be good because people will find out if it's not as soon as they turn it on. That is not true of medicine or economics (or climate science). It's very, very hard to get to the 'truth' in these fields and if you think you can pluck it out of your brain after skimming a few articles without even examining the credibility of the source(s), you are deluding yourself.

 

[ska invita]

i would have thought the majority of the world doesn't have a minimum wage. we only got it in the uk recently (against heavy opposition from the traditional right)

well im completely wrong...lots do http://en.wikipedia.org/wiki/List_of_minimum_wages_by_country

 

[ymu]

Hmmm. Milton Friedman won a nobel prize.

A Nobel Prize doesn't mean infallibility. It does mean you'll have to do some homework if you want to dismiss the source as not credible.

 

[BigTom]

I don't know of any country that doesn't have a minimum wage law, and this is sensible so long as it isn't set so high that it generates unemployment and widespread under-the-table working.

somalia

Yeah but the thing with generating unemployment is that on a micro level minimum wages do generate unemployment by pushing firms costs up, some that are on the edge will close and others may look to lay off staff, but on a macro level it generates employment by moving money from profits (investment) to wages (spending). Spending increases demand, whilst investment increases supply. Spending also increases the speed of circulation of currency as money that is spent tends to change hands more often than money that is saved or invested.

Whether or not a minimum wage increases or decreases unemployment looks to depend on a number of factors, and is not at all clear cut, but if you just listen to hayek/von mises/friedman types they will say it always increases unemployment, because they only see the micro level of things, and can only consider the effect of the policy from that viewpoint.

It's the kind of thinking that you see coming out in other ways too - the individual/community split is in many ways the same as the micro/macro split and so libertarian fools claim there is no community, only individuals and cannot even comprehend the macro arguments about society and economics.

 

[Frank Merton]

the thing with generating unemployment is that on a micro level minimum wages do generate unemployment by pushing firms costs up, some that are on the edge will close and others may look to lay off staff,

A firm that can't pay the minimum wage, so long as it is at a reasonable level, should go out of business and probably will anyway soon. This will displace some workers but make the overall nation more efficient. The problem that can happen is when the jobs end up being exported to another country with a lower minimum wage. Offsetting this is the fact that minimum wages encourage increases in productivity, which in turn drives everyone's living standard higher.

but on a macro level it generates employment by moving money from profits (investment) to wages (spending). Spending increases demand, whilst investment increases supply. Spending also increases the speed of circulation of currency as money that is spent tends to change hands more often than money that is saved or invested.

No argument here except that "profits" are as likely to be handed to owners as to be invested.

 

[ymu]

The first sentence here is such a massive point I think, what seems right on a micro level so often ends up being wrong on a macro level, I think the minimum wage stuff is a good example, opposed by free market economics because it looks on a micro level and sees firms costs being pushed up -> profits down (or inflation), but at a macro level, increasing wages (especially at lower incomes) leads to an increase in spending (because the marginal propensity to consume is higher at lower income levels, as you get richer money tends to be saved or invested). This is an increase in demand (and also increases the speed of circulation of currency), which means more sales and thus more profit. Henry Ford discovered this for himself back in the 1910s or 20s when he raised the wages of his workers to $5/day to reduce staff turnover and found himself making more profit because now his workers could afford to buy his products so he sold more.
ime, sadly, the libertarian hegel/von mises/friedman followers seem unable to really comprehend the macro arguments, whilst keynesians can get to grips with the micro stuff quite happily, just give primacy to the macro stuff - which is generally based more in empricial evidence than the heavily theory led micro stuff ime.

Brilliantly put Tom.

When asked why he didn't automate his factories, Ford replied: Because robots do not buy cars.

Friedman's ideas got adopted 30 years ago, by a B-movie actor and a chemist, on the basis of theory and no evidence. Now we have the evidence. GDP growth was higher (globally and in individual rich countries) in the 30 years before 1980 than in the 30 years since. Recessions have been more frequent and more serious, and all of them have been caused by the financial sector.

The problem for saner industrialists like Ford is the free-rider dilemma. If wages are high enough to support profits, then one factory can cut wages without feeling any pain. Then the factory nearby finds that there are lots of workers wanting jobs, so they can cut wages and still get shit done. The the office-based companies notice that there a lot of perfectly well-educated ex-factory workers who are desperate for jobs ... And eventually we end up where we are now.

The problem with micro-economics is that it treats workers like commodities. It doesn't factor in the fact that they are also the customers, because they don't work on a whole economy basis, where my spending is your income. Macro lost its way in large part because it started trying to work it all out from micro first principles, and it's a fucking disaster.

 

[BigTom]

Well, I work in medical research, and the first thing we do is check the source of funding. It is intensely naive to say that it does not matter. The major medical journals won't even publish industry-research unless the authors are contractually independent from the company (ie owners of the data and free to publish regardless of what the company wants).

We do then scrutinise the content very carefully indeed. The purpose of looking at funding sources is to compare the manufacturers results with those of independent researchers. It's quite an eye-opener. Ben Goldacre's Bad Pharma is all the education you need here. There are some extracts in the Guardian if you don't want to buy the book.

I'm not sure what you mean by 'relying on someone else's opinion', but if you mean 'credible expert sources', how else are you going to form opinions about incredibly complicated subjects? I do medical research, but I cannot possibly research every medicine myself. If it's not a topic I'm personally involved in, I go to credible sources and people I consider competent in the field. I don't ask the manufacturer what they think because they are proven liars who are happy to kill people for profit.

Economics suffers from exactly the same problem. It's not physics. If Sony make a new kind of TV, their science has to be good because people will find out if it's not as soon as they turn it on. That is not true of medicine or economics (or climate science). It's very, very hard to get to the 'truth' in these fields and if you think you can pluck it out of your brain after skimming a few articles without even examining the credibility of the source(s), you are deluding yourself.

Spot on.

I think a lot of the time it's wrong to look for "truth" in social science/economics (don't know about medicine), instead what you should be looking for is stuff that is "honest" - knowing the truth about what is happening in the economy would mean knowing everything that happens. Too much stuff happens for that to be humanly possible and so all we can do is take a sample of the world and extrapolate from that.
The sampling can be done honestly or dishonestly, to try to find "truth" whilst recognising the inherent fallibilities of your chosen methodologies and the limitiations of what they can tell you is being honest. It can be done systematically or unsystematically, it can be done rigourously or carelessly, it can be done with an answer in mind, meaning you will find the things you want to find, or with an open mind (though even that is not really possible, but you can see some people will just dismiss any contrary evidence whilst others will be accepting of surprise outcomes and trusting in their methodologies and understanding their limitations to be able to accept that evidence and move to test it further.

(With statistics this is easiest to see - there's no such thing as a "true" statistic, all are estimations, all have limitations. Some are honest and the best evidence we have for what the truth is, others are badly flawed or used to claim things that can't be claimed and are not the best evidence we have)

 

[BigTom]

A firm that can't pay the minimum wage, so long as it is at a reasonable level, should go out of business and probably will anyway soon. This will displace some workers but make the overall nation more efficient. The problem that can happen is when the jobs end up being exported to another country with a lower minimum wage. Offsetting this is the fact that minimum wages encourage increases in productivity, which in turn drives everyone's living standard higher.

No argument here except that "profits" are as likely to be handed to owners as to be invested.

Yep, agree with this, although I think there may be a definitional thing going on here, in that profits either go to shareholders as dividends or are reinvested in the firm (in some way, this may just mean building up cash reserves, or it may mean purchasing another company rather than expanding your own).
Most shares being held by insitutions (especially pension funds) means that any dividends that get paid out will be returned as investments or will get paid out in wages to the shareholders/partners/whatever of the institutions.

You're right though that my straight profits (investment) was crude and wrong on a micro level, but on a macro level it's not an unfair statement to make imo (though crude still because it doesn't recognise the details that go on at a micro level).

 

[ymu]

No argument here except that "profits" are as likely to be handed to owners as to be invested.

I think he meant savings + investment.

Most of what we call investment is actually saving anyway. Building a new factory is investing; buying shares in an existing factory is saving. Investment means producing something that would not exist otherwise. Shares changing hands produces nothing except a cut for the broker. Share-holders produce nothing except downward pressure on wages. They should be outlawed, IMO.

 

[ymu]

Spot on.

I think a lot of the time it's wrong to look for "truth" in social science/economics (don't know about medicine), instead what you should be looking for is stuff that is "honest" - knowing the truth about what is happening in the economy would mean knowing everything that happens. Too much stuff happens for that to be humanly possible and so all we can do is take a sample of the world and extrapolate from that.
The sampling can be done honestly or dishonestly, to try to find "truth" whilst recognising the inherent fallibilities of your chosen methodologies and the limitiations of what they can tell you is being honest. It can be done systematically or unsystematically, it can be done rigourously or carelessly, it can be done with an answer in mind, meaning you will find the things you want to find, or with an open mind (though even that is not really possible, but you can see some people will just dismiss any contrary evidence whilst others will be accepting of surprise outcomes and trusting in their methodologies and understanding their limitations to be able to accept that evidence and move to test it further.

(With statistics this is easiest to see - there's no such thing as a "true" statistic, all are estimations, all have limitations. Some are honest and the best evidence we have for what the truth is, others are badly flawed or used to claim things that can't be claimed and are not the best evidence we have)

It is the same in medicine. It's why I often use scare quotes around 'truth' in this context, in academic writing as well as informally.

And you are bang on with the rest too.

 

[Frank Merton]

I think he meant savings + investment.

Most of what we call investment is actually saving anyway. Building a new factory is investing; buying shares in an existing factory is saving. Investment means producing something that would not exist otherwise. Shares changing hands produces nothing except a cut for the broker. Share-holders produce nothing except downward pressure on wages. They should be outlawed, IMO.

Nowadays, at least in the States, stock brokers get less than ten dollars for even the largest trades when one does it on the internet. I don't know how they make a living. What shareholders produce is initial capital. When an enterprise begins in Vietnam, it is the state that must take the risk that the venture will succeed or not. When this is farmed out to private investors, they take the risk.

With central planning (which we still have) the decision of which enterprises to allow and which not to are still taken with regard to the plan. However, it makes it easier to get capital if you allot profit to private investors. Usually the state keeps a significant portion.

Of course small and family enterprises work on a different non-public basis, so there all that is needed is evidence that the business serves a need in its particular location.