Economics Re: The Fire Sale....

[Kilkis]

Indeed.

Warwick

[SteveH]

For some reason I can't play the linked podcast.

Odd, "No scripts" gave me scripting warning, but that was not malicious, so clicked through & it played fine. Same for download.

Uploaded a copy here:- https://onedrive.live.com/?id=CC4CE9E25FD1505B!121&cid=CC4CE9E25FD1505B&group=0

Warning Microsoft OneDrive. Download or play at your own risk!

What Reagan and Thatcher introduced isn't really capitalism.

The Nomenclature is hideous in Economics, worse than Minoan Archaeology... Yes the talk covered that mutation to Reaganomics & the acquisition of further areas of control to the Finance & Corporate sector.

Steve.

[Loretta9]

and the pensions were gambled away by selfish criminal banksters --- and we the tax payer bailed out those criminals. So win - win for the banksters.

[Phild]

Now, this article explains what's been wrong with 'traditional' economics, and shows how to fix at least the predictive role of economics. Hopefully analysis of the models produced ought to be able to fix the policy setting part too.

[Kilkis]

The following sentence is from the article linked by Phil: "Plausible-sounding theories are believed to be true unless proven false, while empirical facts are often dismissed if they don’t make sense in the context of leading theories." My emphasis in red. I have one slight disagreement with this sentence. I believe it should read: "Plausible-sounding theories are believed to be true even when proven false, while empirical facts are often dismissed if they don’t make sense in the context of leading theories." There are many many examples to illustrate this.

There are a whole range of modern mathematical techniques being applied by economists to bring some sort of rigour to economics. All of them have been ignored so far by mainstream economists because they are not based on their neo-classical economic ideas. Classical economics, largely starting with Adam Smith, was mainly descriptive because the mathematical techniques available at the time were not capable of analysing problems with the complexity that occurs in economics. Outlandish simplifying assumptions were made to allow some mathematical analysis. Neo-classical economics still mostly follows the same path. I think it was Milton Friedman who came up with the idea that it doesn't matter if the underlying assumptions are wrong as long as they allow us to reach correct conclusions. Economists then totally ignore the fact that their conclusions are wrong more than they are correct and they are wrong precisely because they are derived from incorrect assumptions. If it turns out wrong it must have been due to some external event that they couldn't possibly have known about. The model cannot be wrong.

Warwick

[SteveH]

The fundamental problem is in our own self belief. I accept that in reductionist thinking, as taught by all scientific schools, that we need proof of repeatability to establish the validity of any speculative hypothesis. This is the foundation of almost all true Scientific thinking. Research scientist. in this respect, would be seen as heretics in religious terms.

Unfortunately for economics, it is not, as far as I can see, directly attached to any of the natural sciences. It exists at a secondary level. "The world as we choose to see it".

It works fine if we see ourselves as God, but falls down a big hole in universal (& Scientific) terms. Seen from my perspective, it doesn't even make Roman thinking, let alone the Renaissance.

As an example:- some people read physics in such a way as to assume light is both a wave & particle. Some consider it, correctly in my eyes, see it as having the properties, as we understand it, of both a wave & a particle. I just tend to believe its light & we have a couple of crap theories that don't explain what it is. Add another level of detachment, & you have economics.

There is a well spring of truth, from my perspective, that lies in Warwick's reply to one of my comments, towards the beginning of this Topic.

" The Earth is a finite resource so indefinite growth is impossible.".

We don't understand, because the fundamentals of the model we are using are based on a infinite set of variables (Based on a reductive/infinite set) The problem is finite & connected.

I suspect we are way above ourselves in lots of ways... Just hope there are some kids around to see our mistakes...

[Kilkis]

... As an example:- some people read physics in such a way as to assume light is both a wave & particle. Some consider it, correctly in my eyes, see it as having the properties, as we understand it, of both a wave & a particle. I just tend to believe its light & we have a couple of crap theories that don't explain what it is. Add another level of detachment, & you have economics...

There is a common misunderstanding about what science attempts to do embedded in this sentence. Science does not attempt to explain what anything is, although scientists may often use the word is for simplicity. Science attempts to explain how nature behaves. In the case of light, for instance, if we want to explain how light behaves when it is propagating we have to use a wave model. If we want to explain how light behaves when it interacts with matter we have to use a particle (quantum) model. While this may seem to be unsatisfactory, and Planck certainly thought it was, it is the best explanation of light's behaviour that we have today. They are not two conflicting models. They are two halves of the same model. The two halves of the model of light's behaviour are not independent. The frequency of the wave and the energy of the particle are related by Planck's constant. It should also be noted that this model allows us to understand and predict the behaviour of light in a whole range of circumstances covering at least 30 orders of magnitude in frequency to a precision of at least one part in ten to the power twelve. I wouldn't really describe this as crap. It is one of the most successful scientific models ever devised.

The difference between science and economics is fundamental. Scientists continuously and highly proactively search out new events that their model cannot explain satisfactorily. When they do find such events they work endlessly to find ways to change their existing model so that it can explain the new event. Economists never search out new events that might challenge their models. When an event appears and smacks them straight between the eyes they completely ignore it. It is the event that is wrong and not the model. Some modern economists, like those referenced in the article, are adopting the scientific method and using a variety of modern mathematical methods that were developed to solve scientific problems to model economic systems. It is a new area of economics and so they are not well developed but they show a lot more promise than the old ways of thinking.

Warwick

[Phild]

Oh no!

Don't get me started on Physics now! - or else we'll end up having the topic split at Steve's post above...

" The Earth is a finite resource so indefinite growth is impossible."

An interesting observation from Ha-Joon Chang is that resources are not infinite, but they may be a little less defined than we think they are. He says that predictions for the oil industry stated that extractable oil would run out in 1997. And, apparently, it did. Fortunately for us, technology had moved on from when the original predictions of oil running out in 1997 were made, such that we now have the technology to search for and extract oil from places that the original predictions thought would be too inaccessible to drill, or uneconomic to exploit. Hence, we still have oil. Until that lot runs out. (Edit: or maybe not, as now we potentially have the ability to make diesel from atmospheric CO2)

The same would be true of other resources, of course. The ultimate aim for the planet would be to recycle resources so efficiently that we wouldn't need to extract more (assuming that they were still available), and thus the economy would always have recycled resources available for manufacturing new products.

Until such time, the unsustainability of, whatever you'd like to call the current post-capitalist phase we're going through, continues.

Admirably captured by the modern philosophers "Muse", in their treatise, titled "Unsustainable".

[Phild]

Perhaps a good coda to this thread is a quote from Ha-Joon Chang's book "Economics: The User's Guide". (Chapter 8 )

After he has described how Capitalism's best growth years were, ironically, while the markets were heavily regulated (before the de-regulation championed by Thatcher and Reagan); and after he enumerates the economic crises produced after de-regulation (with none occurring post WW2, until de-regulation started)

He says this:

Unfortunately, following the rise of 'new finance' in the last three decades, our financial system has become a negative force. Our financial firms have become very good at generating high profits for themselves at the cost of creating asset bubbles whose unsustainability they obscure through pooling, structuring and other techniques. When the bubble bursts, these firms deftly use their economic weight and political influence to secure rescue money and subsidies from the public purse, which then has to be refilled by the general public through tax hikes and spending cuts.

...


Unless we regulate our financial system much more strictly, we will see the repeat of these crises. Many of the regulations that I have described as being weakened or abolished since the 1980's need to be brought back or even strengthened.

This man is fast becoming my new hero and ought to be global finance minister, if such a post existed. (Of course, Chomsly would have to be global president, whether he likes it or not! )

[Clio]

Chomsly would have to be global president

Lovely L.Carroll-type literal.

"All chomsly were the Ha-Joon pools..."

Sorry. It's Saturday.

[Kilkis]

I totally agree with Ha-Joon Chang when it comes to regulating the financial system. The Glass Steagall act in the USA was enacted in the 30s to prevent the actions by banks that had caused the Great Depression. It separated retail banking and investment banking. In the UK all the mutual building societies were restricted to retail banking anyway. It worked.

These regulations started to get unpicked in the Reagan-Thatcher era and have continued to be unpicked up to the present day. It is non-partisan. In the Clinton era there were a large number of prosecutions of banks for various wrong doings. Clinton did a deal with the financial system that, if they agreed to fund Democrats in the same way they funded Republicans he would change the law so that those offences would no longer exists. Everything illegal that the banks were being prosecute for became legal. Current governments are still slipping extra clauses into unrelated bills that allow the banks to do things that they are prevented from doing.

Don't think that I am putting all the blame on the USA. The UK's financial regulations are much weaker than even in the USA which is why most of the large investment banks commit their fraud through their London based subsidiaries. London is the money laundering capital of the world.

The financial system, in the form of the large investment banks, completely control governments. Either they own them, bought and paid for, or they blackmail them, i.e. if you don't do ... we will crash the world financial system. Only Iceland has stood up to the financial system but I guess the large investment banks who wield the real power weren't that bothered about a small country.

Once agreements like TTP and TTIP have been enacted it is the end of the road. The financial system and global business then completely own the world. It doesn't matter what laws you pass the Investor-State Dispute Settlements (ISDS) system embedded in TTIP and probably* in TPP overrules national law and is based purely on whether a government action has caused a company loss of profit. Company X sells a product that poisons hundreds of people in country A. Country A enacts a law banning the product. Company X invokes an ISDS and sues country A for loss of profit. The ISDS only considers whether country A has or has not caused company X to lose profit and does not consider at all that company X's product poisoned hundreds of people. Clearly the law has caused company X to lose profit so the ISDS rules in favour on the company. The company is awarded billions in damages from Country A's government and country A is ordered to repeal the law. Far fetched scenario? It has already happened in Canada under the similarly constituted NAFTA.

Warwick

* I say "probably" because the USA has managed to keep the contents of TPP more under wraps that TTIP. TPP is a national secret. Even most senators have not had sight of it. Those that have risk prosecution if they reveal anything that is in it. Wikileaks managed to reveal a little but not about ISDS. All this type of agreement contain an ISDS so it is highly likely that it is in TPP as it was in NAFTA and will be in TTIP.

[Phild]

How unutterably depressing.

We're doomed. Doomed, I tell you!

[Kilkis]

The problem is that it is quite easy to justify why such conditions are needed in an international trade agreement. A government creates a set of rules. A company invests in the country on the basis of that set of rules. A different government is elected. They arbitrarily create a different set of rules that means the investing company loses all its investment. It is not unreasonable, for the benefit of free trade, to have some sort of protection from arbitrary changes made by governments. Since it is to protect against government changes the resolution procedure has to be above national governments. Once such a procedure is in place, however, it is difficult to stop it being used in cases where the government decision is not arbitrary.

In case people think this is off piste for LiC, TTIP is being negotiated between the USA and Europe so, once signed, it will affect Greece as much as any other country in the EU. I think it is a fair bet that over 99.99 % of EU citizens have no idea what TTIP is or what it contains. It is negotiated completely behind closed doors with its contents being kept highly secret. We only know the little we do know because of leaks by concerned parties. It is quite possible that it will be signed with no democratic mandate from the people of the EU. Once enacted it cannot be revoked. Also steps taken after it has been enacted cannot be revoked. For example if a right wing government decided to sell off huge chunks of the NHS to US medical companies that sale could not be revoked by a subsequent left wing/centrist government. All EU and national law is subservient to the rules of the TTIP agreement.

Warwick

[Mixos]

If what you write is correct, Warwick -- and I have no reason to suppose it is not! -- then the TTIP is a very sinister development. It has always been a rule of Parliamentary democracy in the UK, for example, that governments cannot bind the hands of their successors. In other words, ANY legislation can be undone by a new government, including the power to renounce EU treaties if it comes to that. If TTIP is able to override all that, then I would think democracy is finished, wouldn't you?

[Kilkis]

...If TTIP is able to override all that, then I would think democracy is finished, wouldn't you?

In the sense that most people think of democracy, yes. I've always thought that democracy is a bit of a myth, at least as we practise it. In America, the UK and most countries in the EU you effectively get to choose between two alternatives. From experience both alternatives do exactly the same thing. You would be pushed to slip a cigarette paper between them. Yes there is loads of rhetoric about how different they are but when you analyse what they do there isn't really.

In America governments have alternated between Democrat and Republican but they have both carried out policies that benefit business, especially the financial sector, to the detriment of ordinary people.

In the UK it has alternated between Labour and Conservative and again they have both acted in the interest of big business and against UK citizens.

In Greece it has alternated between PASOK and ND and again both have acted in the interests of the Greek oligarchs and against the interest of the people.

People like Tsipras and Corbyn offer an alternative view but then get driven into the dirt by the same self interested individuals who have benefited from the status quo. While I have no allegiance to left or right I can recognise people who are saying what they believe rather than what keeps them "on message". While I don't agree with the ideological view of "taking the means of production into the hands of the workers" and I support free markets, I do recognise that some things are natural monopolies and should never be allowed to be in private hands. I think a lot of the ideas that Varoufakis put forward to the Eurogroup and Corbyn has proposed in the UK make a lot of sense and are supported by some pretty heavyweight economists.

Warwick