Tag: economics

Even the Guardian gets it

This is one of the few times you will see me approvingly quote an article from The Guardian:

Even as their world came apart, the bankers clung to denial. By August 2007, the flagship hedge fund of Wall Street’s most prestigious firm was tanking fast – and what explanation came from the man at Goldman Sachs? “We were seeing things that were 25-standard deviation moves, several days in a row.” The bank was getting hit by events that were only meant to happen once every 100,000 years – and they were happening every day of the week. Given a choice between blaming their models or reality, Goldman’s bosses held the world at fault.

You know the rest because, a decade later, you and I are still paying for it. How the banks died, the world economy collapsed and most of us got poorer. How the financiers, mainstream economists and regulators were so detached from reality that they swore blind that such a catastrophe was impossible – even while it was under way.

Their reputation has never recovered. And as an economics journalist, I look across at politics and see the same process at work. Brexit, Donald Trump, Jeremy Corbyn: time after time, the political class has completely failed to understand the world they were governing, policing and analysing. Allow me to be blunt: our political crisis is also a crisis for our political class. And it is one from which I doubt they can recover.

At each major fork in the road, they have sped off down the wrong turning, while decrying the other as unimaginable. Each time, they have crashed.

That is because the maintream economic models, on which so much of the social policy of the last 45 years has been made, are wrong. But the wealth of too many powerful and well-connected individuals relies upon the continuance of the system built on those false models for anyone to make any substantive changes until the whole thing collapses. As it inevitably will, sooner or later.

For starters, all the bad debt needs to be written off. It will never be repaid. But writing off the bad debt means the bankrupting of almost every major bank in the world, and the financial elite would rather see the world collapse into disease, famine, and war than accept the just consequences of their idiotic actions.

This is the Great Depression 2.0

On the plus side, it appears the Keynesian interventions have managed to successfully “smooth out” the business cycle.

The following are U.S. GDP growth rates for every year during the 1930s…

1930: -8.5%
1931: -6.4%
1932: -12.9%
1933: -1.3%
1934: 10.8%
1935: 8.9%
1936: 12.9%
1937: 5.1%
1938: -3.3%
1939: 8.0%

When you average all of those years together, you get an average rate of economic growth of 1.33 percent.

That is really bad, but it is the kind of number that one would expect from “the Great Depression”.

So then I looked up the numbers for the last ten years…

2007: 1.8%
2008: -0.3%
2009: -2.8%
2010: 2.5%
2011: 1.6%
2012: 2.2%
2013: 1.7%
2014: 2.4%
2015: 2.6%
2016: 1.6%

When you average these years together, you get an average rate of economic growth of 1.33 percent.

This isn’t quite right. I ran the numbers and the average for the 1930s is 0.53 percent, whereas the 2010s average is 1.17 percent. So, it’s both better and worse than the author wrote. Meanwhile, despite the anemic GDP “growth”, the stock market has hit new peaks and optimism is high.

And that sound you hear is everyone familiar with socionomics rooting around in their closets looking for their crash helmets.

Alt-Retard economics

Having seen and heard a few economically illiterate morons pop up and advocate NATIONAL SOCIALISM as some sort of answer to globalism and free trade, I decided that I would take the five minutes required to demonstrate that national socialism is A) not a coherent economic theory or program, B) not a viable economic system, and C) structurally doomed to fail even faster than the current US system is today.

A) National socialism is not a coherent economic theory.

“The basic feature of our economic theory is that we have no theory at all.”
– Adolf Hitler

B) National socialism is not a viable economic practice.

USA 6-year budget deficit to revenue, 2010-2016
26.8 percent

National Socialist Germany 6-year budget deficit to revenue, 1933-1939
62.9 percent

C) National Socialism was structurally doomed to fail even faster than the current US system is today.

Both the current US system and the historical Nazi systems were dependent upon credit booms. But the Nazi debt-spending was 135 percent worse than the USA’s insanely profligate ways. The ad hoc National Socialist economics meant that the Nazis either had to surrender to the bankers on whom they had declared metaphorical war or engage in material imperialist war to acquire the resources to pay off their rapidly growing debts.

Anyone who advocates national socialism as an economic solution is either totally ignorant or literally retarded. It is even less credible than libertarianism, free trade, or globalism. Frankly, to call it “retarded” is probably a little too generous.

Mailvox: disproof vs positive claim

RS asked about tariffs and wages:

In your second presentation on Free Trade you said that Hazlitt was erroneous in claiming that tariffs would reduce wages in America and you pointed to the fact that wages have reduced since 1973 event though tariffs have largely been eliminated. In any event, I think that the reduction in wages for American workers since that time is due to the large scale importation of foreign workers which seems orthogonal to tariffs.

It is false to claim that tariffs reduce wages. While it is true that the two primary reasons for reduced American wages are a) twice as many women working than before and b) the importation of foreign workers, the fact is that reduction of tariffs has not increased wages. Perhaps more to the point, wages in China have risen from 445 CNY to 67569, most of this prior to the relaxation of tariff rates in 2010.

It is difficult to separate the various effects, but the point is that we do not see the inverse tariff/wage relationship upon which Hazlitt in part bases his case.

Meanwhile, DH found himself troubled by the thoughts my previous Darkstream raised:

Your recent dark-stream is quite thought provoking. I had difficulty putting my mind at rest enough to fall asleep until way past my usual bedtime. The points you made resonate with me as true, however the argument is left begging for more.

Your reaction to comments stood out as thought provoking as well. While I do not consider myself to be particularly bright on an absolute scale, I have no idea what my I.Q. is. I find it does not require a great deal of intelligence to be frustrated with and isolated from most of those around me.  I relate to your frustration, though I wish it didn’t keep you from completing your thoughts.

Even if we could distill all the best aspects of every “ism” into one best of all “isms”, it would not be accepted upon pain of death either by the elites or their devoted subjects.

The point that I am making is not that communism is good or desirable. It is merely that global free markets and individual sovereignty is incompatible with the survival of both nation and family. It is not an accident that so many globalists are childless individuals with unusual family situations; even the modestly successful expat communities tend to be mostly populated by rootless transients upon whom one can hardly expect to successfully build a society, let alone a civilization.

What passes for global society is intrinsically parasitical, if not downright predatory, and therefore cannot possibly serve as a sound foundation in itself. Globalism requires that cows first transform themselves into wolves, and then, after that impossibility is successfully accomplished, learn to eat grass.

Darkstream: Free Trade part 2

Finally got around to addressing this in tonight’s Darkstream. Hit 13 of Henry Hazlitt’s 23 errors on free trade, which longtime readers already know. I also slapped down a Nazi larper who suggested “national socialism” as an alternative to free trade; one of these days I’m going to have to do an analysis of the Nazi economic program to make the absurdity of it clear to those who can’t move beyond the binary world of “communism bad, ergo expansionary Teutonic supremacy good.”

Adieu, Paris

Trump rejects “another scheme to redistribute wealth out of America” in pulling out of the 2015 Paris Accord on unicorns.

I mean, “climate change”.

“Our withdrawal from the agreement represents a restoration of America’s sovereignty.”

Darkstream: why Communism is better than free markets

This one should amuse the VFM. I sort of lost my patience with the midwits and binary thinkers who think that the correct way to respond to someone saying something original is to quote conventional boilerplate of the sort that anyone who is even half-educated already knows. Anyhow, it should also interest those of an economic bent, as in the course of explaining the observation that Communism is better for a nation in the long-term than liberal democratic capitalism, (the what, if you will) I was able to explain the economic reasons why that always had to be the case.

This doesn’t mean that socialism isn’t economically retarded; it is. But it is that very retardation that tends to protect a nation from the ravages of the global free markets. And if you’re tempted to respond that the global markets aren’t truly free, well, watch the Darkstream first.

It might help to remember the fact that X being better than Y does not mean that X is either good or desirable in itself.

They’ve got nothing

Literally nothing. And they know it now too:

The spell worked its magic for three decades. For three decades humanity believed in the blessings that globalization would bring in its wake. It was assumed that in the end everyone involved will benefit when we remove regulations, when corporations become ubiquitous throughout the world, when the banks have lots of money, when tax havens exist, and of course when government stays out of our hair. What prevailed was the primacy of the economy, whether in Herne, New York or Shenyang. It was as simple as that.

But times have changed. Once considered to be the High Temple of market dogma, the mighty financial world was about to collapse ten years ago, before it had to be rescued by – surprise – the rest of us.

What also collapsed was the myth that markets can regulate themselves. Simmering unrest emerged, borne by diffuse fears, half-knowledge and justifiable rejection of what has gone wrong with globalization. It became an opportune time for con men and authoritarians.

We now see a void that cannot be remedied by trying to fix details. What the world needs instead is a new leitmotif, a new guiding concept. We indeed need it before populists of all stripes fill this void by inciting people against each other. Time is of the essence….

The greatest promise has remained unfulfilled: Half of the Americans today have seen stagnating or even significantly lower real incomes since 1989. In Germany, there are 40 percent who are less well-off in real terms, and half of Germans possess practically no wealth. And nearly one in four Germans works for little pay. Such enormous wealth gaps between the rich and the poor existed in the nineteenth century as well.

Depending on the calculation, progress has thus by-passed a third to half of the population. The Americans and Britons were the first to be jolted by this development through the election victories of Trump and Brexit. Ironically it is those very countries who most eagerly followed the mantra of the free markets that are now confronted with Industry 0.0 and social division. Meanwhile, IMF experts are having to concede that capital markets are probably not so efficient after all. And the once orthodox-liberal OECD is only defining growth these days as good growth if it benefits the poor.

The myth of the past has become passé. What is missing is the new, powerful concept…. What we need to find is a unifying formula to define the new paradigm: the leitmotif.

Finding it is a tremendous challenge. It cannot be as simple as the market-works-wonders formula. Yet it must be simple enough to make it plausible to everyone. The solution probably lies somewhere in the middle: in a better controlled, enlightened globalization that can do without the compulsion to standardize everything throughout the world. What is needed is a new balance of liberties with built-in safeguards against excesses. And an environment in which politicians can again shape and decide on policies instead of rescuing banks or states without having much choice in the matter.

The great irony is that the author quite clearly doesn’t realize that “the myth of the past” was a con all along, and what he’s begging for is a new and improved con from the same set of con artists.

Economists still puzzled by 2008

Robert Schiller, who chronicled the rise of housing prices that led up to the 2008 crisis, still can’t figure out why it happened. Neither, apparently, can any of his fellow economists.

There is still no consensus on why the last housing boom and bust happened. That is troubling, because that violent housing cycle helped to produce the Great Recession and financial crisis of 2007 to 2009. We need to understand it all if we are going to be able to avoid ordeals like that in the future. But the explanations for what happened in housing are not, I think, to be found in the conventional data favored by economists but rather in sociologically important narratives — like tales of getting rich through “flipping” houses and shares of initial public offerings — that constitute the shifting mentality of the era.

Strange, that the professional economists can’t determine the cause 7 years after it happened, and 15 years after I warned that it was going to happen. As those who have Collected Columns Vol. 1, Innocence & Intellect know, I wrote the following in 2002:

There can be little doubt that the implosion of the equity markets will soon be followed by the pricking of the credit and real estate bubbles. As great financial houses such as Citigroup and JP Morgan Chase teeter on the edge of bankruptcy, it is well within the realm of possibility that the triple whammy of the equity, credit and real estate implosions will lead to the collapse of the entire global financial system. 


Complete collapse of the system was staved off by the bank bailouts combined with the easiest monetary policy in human history. But the system was not fixed. Far from it. The new stock market highs we are seeing today are not the result of a strong economy, but rather, a perilously fragile one that is subject to the very same catastrophic failure that was narrowly averted in 2008.