Electionomics

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Talwyn Aureliano
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Electionomics

Post by Talwyn Aureliano »

Hello friends :)

I just read this really remarkable article which I wish to share with you. For those of us who live in western democracies, this is extremely pertinent information and I urge you to think deeply about what the author is saying.

[quote:3pisckex]
[b:3pisckex]Price is Right[/b:3pisckex]

Modern elections can resemble auctions. In a political Price is Right, contenders offer more goodies to voters in an increasing spiral of additional services, greater benefits, better rebates and lower taxes. In times of austerity, contenders compete to tax more heavily and cut spending more savagely to prove their "fiscal conservative" credentials. It is all part of the charade of modern democracy.

Australian politicians of all persuasions face the added burden of economic inevitability. The Australian economy is exposed to forces outside their control. Much that happens would happen anyway with or without their intervention. It just is an issue of taking credit or allocating blame.

Campaign economics are phoney wars. Projections are rarely correct. Promises, increasingly deferred for years and with complex eligibility criteria, are frequently not delivered or altered when circumstances change. Politicians are practised in Keynes' riposte: "When the facts change, I change my mind. What do you do, sir?" It is the political theatre of the never never.

Verification by independent or partisan economists does not alter the underlying reality. As P J O'Rourke wrote economics is "an entire scientific discipline of not knowing what you're talking about". John Kenneth Galbraith believed economists were only placed on Earth to make astrologers look good.

Politicians do not adhere to strict economic orthodoxies. Ronald Reagan, the beatified doyen of conservatives, ran substantial budget deficits that had a distinct Keynesian taint. Tony Blair and Bill Clinton's social democrat administration presided over the aggressive dismantling of regulation, which looks distinctly neo-liberal and ill conceived. No pure economic model has been implemented in living memory, except perhaps in North Korea. Politicians are like David St Hubbins in the satiric film This is Spinal Tap: "Before I met Jeanine ... my life was cosmologically a shambles. I would use bits and pieces of whatever Eastern philosophy would drift through my transom."

[b:3pisckex]Mind that Growth[/b:3pisckex]

In order to "move forward", all brands of politics and economics assume sustainable, strong economic growth and a belief that governments and central bankers can exert substantial control over the economy. Harry Johnson, the Chicago economist, writing with his wife Elizabeth in The Shadow of Keynes provides a vivid description of this preoccupation: "...faster economic growth is the panacea for all ... economic and for all that matter political problems and that faster growth can be easily achieved by a combination of inflationary demand-management policies and politically appealing fiscal gimmickry." In 1925, F Scott Fitzgerald in The Great Gatsby summed it up: "Gatsby believed in the green light, the orgiastic future that year by year recedes before us. It eluded us then, but that's no matter - tomorrow we will run faster, stretch out our arms farther."

The global economy's dirty secret is that in recent years economic growth and the wealth created relied on falsehoods. It was based on borrowed money and speculation. It relied on allowing unsustainable degradation of the environment in the form of climate change. It also relied upon the uneconomic, profligate use of mispriced non-renewable natural resources, such as oil.

Since 2001, borrowing against the rising value of houses contributed to around half the recorded economic growth in the US. By 2008, $4 to $5 of debt was required to create $1 of growth. By 2009, China needed $6 to $8 of credit to generate $1 of growth, an increase from around $1 to $2 of credit for every $1 of growth. Global trade was built on a financing model where sellers of goods and services indirectly financed the purchase. The ability to generate high rates of economic growth through debt is questionable.

Debt allows society to borrow from the future. It accelerates consumption, as debt is used to purchase something today against the promise of paying back the borrowing in the future. Spending that would have taken place normally over a period of years is squeezed into a relatively short period because of the availability of cheap borrowing. Business over invests misreading demand, assuming that the exaggerated growth will continue indefinitely, increasing real asset prices and building significant over-capacity.

There is a similarity between the problems confronting mankind - the financial system, irreversible climate change and shortages of vital resources like oil, food and water. Toxic debt and toxic emissions increasingly clamour simultaneously for attention. In every area, society borrowed from and pushed problems into the future. Short-term profits were pursued at the expense of risks which were not evident immediately and that would emerge later. In his novel Rabbit is Rich, John Updike's hero Harry Angstrom passes judgement on the post war generation: "Seems funny to say it, but I'm glad I lived when I did. These kids coming up, they'll be living on table scraps. We had the meal."

There are parallels between the financial and environmental crisis. Financiers entered into increasingly destructive transactions, extracting large fees leaving taxpayers to cover the cost of economic damage. Andrew Haldane, of the Bank of England, in a March 2010 paper compared the banking industry to the auto industry - both produced pollutants: for cars, exhaust fumes; for banks, systemic risk.

The global financial crisis may mark the end of an unprecedented period of growth and expansion. It was Ponzi Prosperity where wealth was based on borrowing from or pushing problems further into the future.

[b:3pisckex]Not So Commanding[/b:3pisckex]

In the 18th century, Western societies shifted from medieval systems of aristocratic and religious authority to models of reason, scientific method, rational discourse, personal liberty and individual responsibility. A tenet of the new faith was the ability to control the economy and markets with the application of applied mathematics and statistics. In 1965 president Johnson's Council of Economic Advisers, led by Walter Heller, declared: "Tools of economic policy are becoming more refined, more effective, and increasingly freed from inhibitions imposed by traditions, misunderstanding, and doctrinaire polemics." The council declared that economic policymakers could now "foresee and shape future development".

Governments and central banks have intervened in the economy repeatedly over the last 30 years. In 2008 and 2009, they did it to prevent the Great Recession turning into the D word that cannot speak its name - Depression.

The crisis calls into question the ability of governments to maintain control of Lenin's "commanding heights" - the most important and strategic elements of the economy. The economic model itself is the source of the problem. As former Fed chairman Paul Volcker observed on 11 December 2009: "We have another economic problem which is mixed up in this of too much consumption, too much spending relative to our capacity to invest and to export. It's involved with the financial crisis but in a way it's more difficult than the financial crisis because it reflects the basic structure of the economy."

Policymakers may not be able to address the deep-rooted problems in current economic models. Governments and central banks have limited tools. Revitalised Keynesian economics may not be able to arrest long-term decline as governments find themselves unable to finance themselves to boost demand in an attempt to maintain growth. It is not clear how if, at all, artificially low interest rates, printing money or financial games can create real ongoing growth and wealth.

Policies are increasingly ineffective or prone to unintended consequences. Australia escaped the worst effects of the Great Recession, in part due to population growth. Australian Gross Domestic Product (GDP) grew but GDP per capita fell. But population growth exacerbates environmental problems as well as increasing the pressure on natural resources, such as water supplies. Australia's economic performance depended on the strong growth of the Chinese economy. Yet China's poor environmental record and Australia's emphasis on commodity exports, including fossil fuels, may be inconsistent with desirable environmental outcomes.

As Keynes warned in 1933: "We have reached a critical point. We can ... see clearly the gulf to which our present path is leading. [If governments did not take action] we must expect the progressive breakdown of the existing structure of contract and instruments of indebtedness, accompanied by the utter discredit of orthodox leadership in finance and government, with what ultimate outcome we cannot predict."

[b:3pisckex]Sovereign Challenges[/b:3pisckex]

Australia's problems include its modest size, dependence on trade and limited global influence. New banking rules negotiated in Washington, London, Brussels and Basel will affect Australian banks and the availability of credit in the economy. Trade and currency wars between major economies will affect Australian trade.

Australia may also be caught up in a rebalancing of economic power between developed and emerging countries. The West's dominance is due to exploitation of the world's physical and human resources. Superior access to technology, capital, institutional arrangement and market mechanisms are important, but less so than assumed.

Increasingly, emerging nations will seek to reverse this balance. Developing countries, that have weathered the global financial crisis better, will set global economic and political agendas. There will be a redistribution of income and wealth between developed and emerging countries.

The West's reliance on foreign capital and markets is already evident. China's purchase of Spanish government debt to support the Euro-zone economy highlights the scale of the shift. Developing countries, led by China, now influence global interest rates and the price for products, including Australian commodities. Other changes are more subtle. As the West ages, it increasingly depends on socially unpopular immigrants or guest workers and uncertain returns from investments in emerging countries.

[b:3pisckex]Always Invert[/b:3pisckex]

In 130 AD, Claudius Ptolemaeus, known as Ptolemy, a mathematician, astronomer, geographer and astrologer, developed an astronomical system. The system fitted the accepted view of philosophers and the church that the Earth was at the centre of the universe and all stellar bodies moved with perfect uniform circular motion. When Galileo observed the actual movements of heavenly objects and tested Ptolemy's theories against the evidence, the system collapsed.

The economics of Australian political parties increasingly resemble the Ptolemaic system. High levels of economic growth, increasing living standards, greater wealth and the ability of policymakers to achieve this through intervention remain central assumptions. Key issues - the possibility of reduced wealth, lower growth and constrained economic sovereignty - do not feature prominently in the policy debate.

Politicians rely on the advice of Jacobi, the Prussian mathematician, to invert to solve difficult problems. They behave like a man who is told that he is going to die in a particular place and tries to avoid going there. No-one wants to confront the possibility of significantly lower economic growth in the future. Like Fitzgerald's tragic hero Jay Gatsby, the incredulous battle cry of politicians of all persuasions is: "Can't repeat the past? Why of course you can!"

Satyajit Das is the author of the just released Traders, Guns & Money: Knowns and Unknowns in the Dazzling World of Derivatives - Revised Edition.[/size:3pisckex][/quote:3pisckex]

http://www.abc.net.au/unleashed/stories/s2959401.htm
In War: Resolution. In Defeat: Defiance. In Victory: Magnanimity. In Peace: Goodwill.

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Kiaransalyn
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Post by Kiaransalyn »

An interesting article. Thanks for that.

My own brief thoughts are that the house price bubble was our own equivalent of the Dutch tulip bulbs. Many people bought a house hoping its value would rise, and they could sell it for much more than they paid.

Our current nations are run by politicians as businesses, yet politics is about forming societies. Little thought has been given to making better societies.

No natural system works the same way as our current economic model, at some point the equilibrium will exert itself.

The current banking system hasn't been fixed, it's just been handed more money.

It's all a bit depressing really.
Talwyn Aureliano
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Post by Talwyn Aureliano »

I agree that democracy, and government in general has become beholden to monied interests over the needs of the people.

This is starkly evident in the US but also in the UK and here in Australia where politicians are lobbied by wealthy companies and individuals who push their agendas ahead of the public interests >:(

This distortion of power undermines the very fabric of democracy and freedom because it exposes the age old cliche that the golden rule is: those that have the gold make the rules >:(

However, what these lobbists have forgotten or try to ignore is that true power will ALWAYS remain in the hands of ther masses and thus if any major popular uprising or outbreak of massive discontent [see Greece for an example] will force political leaders to ditch their monied lobbiests and bow to public pressure.

Hmm....

perhaps this song needs to be played. Sure its a a bit hammy and from a medicore musical but the words are spot on for today.

[youtube:209u3yqq]Zk69e1Vcmvg[/youtube:209u3yqq]
In War: Resolution. In Defeat: Defiance. In Victory: Magnanimity. In Peace: Goodwill.

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Kiaransalyn
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Post by Kiaransalyn »

Well in the UK, we have a prime minister who described Britain as a junior partner to the US in the Second World War in 1940. A daft statement considering that the US hadn't entered the war then and also that the British Empire was hardly anyone's junior partner at that stage. Obviously nowadays, we're just a minor ally of the US.

As regards revolution, people only really revolt when things get really bad. In Greece, there have been a few protests, some stones thrown and bullets shot, but the government hasn't fallen. And those places where governments have fallen due to popular uprisings have generally become worse. I'm thinking of the Russian and Chinese revolutions last century that resulted in party chairmen instead of emperors.

Plus ça change, plus c'est la même chose. The more things change, the more they stay the same.
T'risstree Helviiryn
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Post by T'risstree Helviiryn »

I've found you a new avatar Tal :p

[img:2pz35lkh]http://4.bp.blogspot.com/_4ltGLlU122g/S ... 0104-1.jpg[/img:2pz35lkh]
L'''' ghefna i''''dol ulu doera natha wael zhah talinth dosstan mzild bekea taga byrren
clicky2cme
Talwyn Aureliano
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Post by Talwyn Aureliano »

I'd prefer a piccy of Warren Beatty in the film "Reds" thanks ;)

standing up addressing the proletariat, inspiring them to rise up and overthrow the capitalist pigs and usher in the workers paradise!

Yeah :p

[youtube:tevx8rxt]c13q2wYZr_0[/youtube:tevx8rxt]
In War: Resolution. In Defeat: Defiance. In Victory: Magnanimity. In Peace: Goodwill.

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