"I like how you can assert out of thin air that current capitalism isn't valid capitalism, because of the "historic meaning of 'capitalism'." How am I supposed to even take this as a valid assertion? You seem to be arguing by vigorous handwaving, and appeal to authority."
Not at all. As I mentioned in my other reply to you, I did no such thing.
It is YOU who are doing the handwaving and claiming "semantic drift" where it doesn't actually exist. Look up the current, modern definition of the word "capitalism", and you will find that it relates to the means of production of goods (and perhaps services) in a society.
Risky speculation in markets, then (especially things like money markets where no goods are involved), is not a part of "capitalism". We're talking apples and oranges here. It has nothing at all to do with capitalism, by definition. Current definition. I am aware that you seem to disagree with that definition, but if so don't go pointing at me, because I did not make it up.
I guess I should make myself more clear. I do not disagree that better regulation of the "financial industry" is called for. I happen to agree with that. My issue is with government manipulation of the money supply.
"And there is every anthropological and psychological reason to believe that family, tribe, religious, and city leaders manipulated and taxed those economies long before we could develop subtleties like banking and stock markets."
I felt it was pretty obvious that what I was referring to was the specific government monetary policy we have experienced over the last (approximately) 80 to 100 years, not whether government control of one sort or another has ever existed. That is completely beside the point.
"Please provide a rigorous and unambiguous way to differentiate stock trading based on speculation from informational goods. I agree that speculation is a bad thing, it's the entire reason for economic bubbles, and boom-and-bust cycles. But when me and my friends sat down and declared, "we can use magic to enforce rules and regulations, how would we stop trading based on speculation". We realized that there was no way to do it, even with omnipotent magic."
I do not know of a way to do that. But what you can do is start using actual assets and production capacity as a measure of real wealth, rather than fictitious fiat dollars "created" by speculative trade, which have had this annoying tendency to disappear without warning.
"No theory is perfect, and this should be recognized by any valid scientist. You know, Creationists think that the Bible is exactly right about the world, and that evolutionary theory has been 100% wrong. It's easy to make such assertions when your entire theory is unfalsifiable."
I'm glad you brought science into this, because that is exactly where Austrian economics shines and Keynesian economics fails. Further, as far as I know nobody (except for you) has tried to make a credible claim that Austrian economics is essentially unfalsifiable. If you think that, then you really don't know much about it. A little history is in order.
In regard to that "main criticism" of Austrian economics, i.e. the assertion that it "lacks scientific rigor": if you know your history of economics, then you know that the Austrian school was around before Keynes, and in fact (you can find some of this in that same Wikipedia article), the present theory and mathematics of mainstream economics owe a great deal to Austrian economists, who first formulated much of it. The supposed "lack of rigor" of the Austrian school refers merely to their assertion that certain elements of the economy cannot be precisely calculated, because there are too many variables. There is nothing at all "unscientific" about that observation.
Any scientist worth his salt will tell you: a theory is only as good as its ability to predict. Keynesians like to point at their equations, charts and graphs (again, many of which were first invented by Austrians), and claim that therefore, their theory is "scientific". However, all the charts and graphs in the world do you no good if your theory can't predict anything. So let's look at some history, shall we?
More history: Austrian theory allows (and allowed) for the existence of high inflation and high unemployment at the same time, now commonly called "stagflation". Up until 1974 when it actually happened, Keynesian economics, with its foundations firmly rooted in A href="http://en.wikipedia.org/wiki/File:NAIRU-SR-and-LR.svg">the Phillips curve, not only did not predict stagflation, but denied that it could even exist. It was against fundamental principles of Keynesian theory, which had to be revised when it did in fact happen. I might add that mainstream Keynesians still rely on the Phillips curve, and and teach and preach about this inverse relationship, even though it was disproved by real life in the 70s and early 80s. That's not very "scientific".
I'm not claiming here that Austrian economists actually predicted that stagflation... but their theory at least allowed for it, while Keynesian theory did not... and still does not. The reaction of the Keynesians to stagflation was to scramble to find some kind of explanation for it, and they came up with "supply shocks", which supposedly render the Phillips curve ineffective. However, pretty much by definition it is impossible to predict when supply shocks will occur, and therefore when the Phillips curve will be valid or not. Which renders it -- a staple of Keynesian economic "theory" -- useless for predictions and therefore nothing but an unscientific abstract concept.
Austrians pointed out the existence of, and predicted the crash of, the 2001 bubble. Keynesians did not. In fact, yet again Keyensians were caught with their pants down, proclaiming that the market was doing great and to "Come on in! The water's fine!"
As I have already shown, Austrians (as represented by Peter Schiff) were also right about the 2008 econo
"However, you can't just reject it as "capitalism" because it makes the word look bad."
I didn't. Nowhere did I state any such thing.
What I wrote was: it isn't "capitalism" so much as it is gambling, because it doesn't fit the historic meaning of the word "capitalism".
Capitalism relates to the means of production and how that is financed. If your company does not produce some kind of goods or services (just as I stated earlier), then "capitalism" doesn't apply.
"From my understanding, stronger regulation of the financial sector essentially has the same effect of having a gold-backed currency, with the advantage that there is actually a degree of control over the market fluctuations."
We disagree in principle. Historically, the most stable and robust economy has been one of free market, free of outside "control".
We have had 80 years of direct government manipulation of the economy, and it has almost invariably resulted in bad consequences, throughout the entire period.
I do not agree that more government control, even if it is more effective, is the answer. Frankly I believe, and the preponderance of the evidence shows, that if governmental control were more effective, things would be that much more the worse.
I'll pass on that, thanks very much.
As for money disappearing, in order to understand that it actually does disappear, you have to understand how it is created in the first place. When faced with the reality of this, many people are actually horrified and choose not to believe. I will admit, that video is perhaps overly dramatic, but it gets the facts pretty straight. (A few minor details are not exact. For example: "I killed the bank" were not Jackson's actual last words, although he did give that answer to the question on his deathbed, on the same day he died. These tiny details do not affect the essential truths told by the video.)
I agree with you about the casino bit. However all of what I have been saying here should indicate to you that I take issue with Michael Moore's blaming of our economic situation on capitalism. On the contrary: it is our deviation from capitalism that has led us to this mess. Modern government monetary policy could not be said to be "capitalism" by any sane person who knew the definition of the term.
I happen to like Michael Moore as a person. However, he tends to get idealism confused with reality, and sound-bites confused with actual theory. That is the most generous statement I am likely to make about him right now.
Perhaps the link I posted earlier will do a better job of explaining what real capital wealth is, than I have. It's late and I am tired. But please note what this man says. He was exactly right about the economy (as Austrian economists have been for quite a while), while all the people following Keynesian theory (official government policy) were 100% wrong.
He explained just exactly what was going to happen, and why.
And as he says: real capital wealth consists of goods and the infrastructure to produce those goods, not whether the stock index is at 12,000 or 13,000. The goods need not necessarily be physical: informational goods are still goods.
It isn't "physical objects", per se. You are confusing my characterization of fiat dollars (which are, indeed, nothing but smoke with influence) with my description of market trading. They are related but I don't pretend they are the same things.
It is what you are trading for that makes the difference. I was not referring to, say, investing in some commodity (pork bellies is the usual jest) versus stock in some company that you think might go somewhere. There is nothing wrong with investing in the stock of some company... as long as it is a real company and it is doing real things in the economy. Producing some kind of product (whether knowledge, software, paper, or steel), paying employees, and so on.
However, Wall Street has become (has been for some time really) a morass of people investing not in companies with a real future, a "capitalist" investment in the classical sense, but rather in what value their stock is from one day to the next. Which turns it into pretty much money speculation, rather than actual investment in companies that produce real goods over time. (Again, without regard to what those goods are. I don't care if it is software, toilet paper, reports from a consulting engineering company, or adult toys. It's still a real product.)
High-frequency trading has simply taken this idea to an extreme, and exemplified how much Wall Street has become a disease, rather than part of the metabolism.
Well, it isn't. Turning over stocks for short-term profit is gambling, not capitalism. Please look up the historic meaning of "capitalism". It isn't just money-mongering.
"You need to get your perspectives straight. Do you really think HFTs are causing enough harm to the global economy to merit outlawing?
The most harm an HFT has ever caused was the flash crash in May 2010, and that lasted about 20 minutes, and a LOT of rational people made a ton of money when they realized a bomb hadn't gone off somewhere and it was just somebody that wanted to sell a lot at market price without a dark pool."
My perspectives are straight enough. And frankly, I don't give a damn about the "global economy", and neither should anybody else. The current popular concept of "global economy" is a myth based on manipulated fiat currency, and is best ignored. Not that our so-called "leaders" will let us actually ignore it, but nevertheless THAT house of cards needs to fall down, and soon, so that people can get back to genuine, rather than artificially and politically created, economic issues.
Saying "the most harm it's ever done" was a little blip is like saying "the bullet only grazed me". It bears no relationship to the damage it could cause.
"(1) People got greedy to the point of being extremely self-destructive,"
Which people? Consumers? You mean the people who were sold loans when they had inadequate income and credit credentials, and were told by the experts that it was okay, and that they could afford it? Oh, yeah. Those greedy people. The ones who believed what they were told by the government, the news, and the finance companies. We simply must protect America from those "greedy" people!!! They wanted homes and were told by all the people in positions of power and knowledge that they could afford it. They must be evil.
"(2) Banks got greedy on people's greed and then went under with them when people defaulted across the country."
Well, the first part is right except for the "people's greed" part, because it was in fact the banks and finance companies who talked them into taking those loans. It wasn't after the fact.
But more to the point is: the banks really didn't go under when the people did. Did they? For the most part, the banks got bailed out, but the people didn't. And the banks knew that would be the case should disaster strike, so they DELIBERATELY made those bad investments. Don't blame it on the consumer. The banks and finance companies deliberately made malinvestments, and they knew full well what they were doing... unlike their victims.
"This all wouldn't have been possible without floating interest rate loans (initially 2% interest for the first three years! Then an effective 12% mortgage on a 30 year loan. Gee, I wonder what's going to happen when middle class Americans have $500,000 mortages at 12%?)"
Nonsense. The government was deliberately keeping interest rates low, and they even said it was to help people buy homes. It was the government's deliberate policy of making interest rates artificially low that caused the malinvestment... that, coupled with the repeal of regulations preventing banks from investing in speculative instruments. We know for indisputable fact that bad loans were being made DELIBERATELY, and then those debts bundled into derivative instruments that were grossly overvalued.
None of this is a secret, and it is ALL due to the banking and finance industries (if you count mortgage companies as finance, which you should), knowingly taking advantage of a regulatory situation which they KNEW would let them get away with murder. Blaming this on the "greed" of consumers, who simply wanted to own a home and were told they could, is grossly distorting the actual picture. The amount of malinvestment and defaults due simply to ARMS had very little to do with the overall picture, OR the dollar value.
"Well, I hate to sound like I defend HFT, but I think the best way to discourage its use is to prove that it doesn't actually do anything valuable."
You have grasped the essence of it, but missed the big picture: Because HFT simply does the same thing, only faster, then in order to prove that it doesn't actually do anything valuable for the real economy, you would have to prove that the stock market, per se, does not do anything valuable for the real economy.
Which is true. But good luck with that. Because people have this idea so entrenched in their minds that they let it effect the real economy, even when it shouldn't.
"Wall street is not a real economy but they have *MAJOR* effects on our economy. To minimize them is not right either. But the fed is made up from people that come from there. So they do what they know..."
I do not agree with your assessment of capital investment, but this is certainly true as far as it goes. On the other hand, there are subtleties you do not account for.
First off, they do have major effects on our economy, but that's simply because we let them. All of Keynesian economic theory is wrapped around the idea that money "created" by the stock market (and fractional-reserve banking, but that's another issue) is "real" money.
And yet we have seen that it is not real money. Many times in history, but most recently in 2008, we have experienced that money going "poof!" back into the thin air from which it was created. And unfortunately (no pun intended), it has a tendency to go "poof" a lot faster than it was created in the first place.
If we did not treat that as real money... if we again had, say, a gold standard... then this could not happen. Markets could still collapse, don't get me wrong. But SOMEBODY would still have the money. It couldn't simply disappear.
"It was also an effect of 15 years of unwinding of the 1930s laws that protected the rest of us from those silly antics."
Agreed 100%. You obviously know your history and have been paying attention. +10.
"HFT is just a game to see who can screw each other faster. Making millions off the backs of others all in the name of 'liquidity'."
Again, agreed. This is basically what I was saying, in different words.
We do not disagree so much. Except about the capital investment thing. On that we will have to agree to disagree.
"Keynes didn't invent fiat currency. There's nothing Keynesian about credit default swaps."
I agree. I wasn't implying that the concept of fiat currency was Keynesian; the Fed was created before he wrote his treatises on economics.
However, Keynesian monetary policy could not exist without fiat currency. When the value of money is set by a free market of goods, government manipulation of the money supply via interest rates (which is what Keynesian theory is all about) is simply not possible.
"Keynesianism is the idea that a recession is when the private sector prefers to hold on to cash and financial assets rather than buying stuff and building capital assets. With that basic model of the economy, Keynes argues that in a recession, the right thing for the government to do is to borrow and spend more money to increase demand.
No, Keynesianism is not just one idea, but if it could be summed up as a single idea, that idea would be that the government can control the economy by influencing the money supply via interest rates.
It's simple, fairly obvious, and it works. Because it works, the world's financial elites and power brokers have refused to allow it to be tried this time around."
Wrong. It's simple, fairly obvious, and it DOESN'T work. If it did, 80 years of Keynesian theory would not have landed us in this mess.
A: By directly -- and heavily -- taxing companies that outsource labor and manufacturing. This avoids the pitfalls of tariffs: we would not be blocking trade from coming into or going out of the country. However, we would be demanding compensation for our economy, from the companies that have been so harming it by their practices. That's about as fair as it gets.
(It's also not a subsidy by the government... so it avoids those problems, too. Instead, it is a source of revenue TO the government.)
"I agree HFT is rubbish, but where do you see justification for long-term investment in capital goods in the US? It seems that industry is being moved to where it can be operated more cheaply - there is no economic justification for more investment here."
Industry WAS being moved to where it can operate more cheaply. And there is plenty of justification. If you're American.
First, let me say this and get it out of the way: China's economy has been slowing. It's not exactly something they advertise, but it's true nevertheless. Further (and I won't claim this is directly related): there is a new Chinese "consumer class" that scarcely existed before, and they are hankering for goods that are not made at home. But having said that, I'm not going to belabor it, and instead I will concentrate on the U.S.
We have learned some things over the last couple of decades. One of the things we have learned is that regardless of whether it results in cheaper goods, outsourcing is bad for the economy. We know for a fact (it is not a guess or just a theory anymore) that it costs jobs at home, and those jobs are more valuable to our economy than the cheaper goods are.
Further, outsourcing is not "fair trade", because it artificially bypasses exchange rates. It is easy enough to say that "U.S. labor can't compete with foreign labor for the same amount of pay". Which is a true statement... but it's only half the story. It's a lie by omission. Because we aren't really competing on an equal basis. Let me construct a simplified example to illustrate the point (numbers just pulled out of the air to make the point):
Company X wants to hire people to manufacture widgets. It can hire unskilled Americans for $10 per hour, or Crotobaltoslavonian workers for $2 per hour. But here's the thing: In America, that $10 buys about 5 pounds of rice. In Crotobaltoslavonia, that $2 buys 10 pounds of rice. So in actual purchasing power, you're paying that Crotobaltoslavonian the equivalent of $20 per hour in America. Americans literally can't compete for that amount because it doesn't pay them enough to eat... in THEIR economy.
And that's the whole point. Economies are different. That's just the reality of the situation. And that's why we have exchange rates... to keep trading FAIR between countries. But hiring labor in a foreign country, in effect, bypasses that exchange rate, and so it is not a "fair trade". Americans are hurt in the process... even if rich Company X gets to keep a few more dollars. We are exporting even more dollars than what they keep as a result... and that doesn't help our economy, either. So it hurts in several different ways, not just one.
Savvy companies actually realize this, but they just don't care. Which is pretty unethical, if you ask me. They are willing to sacrifice your $10 so they can make an extra $1 in eventual profits. And you should be angry about that.
Plain and simple: we need to bring the manufacturing jobs back home. Partly because of the direct monetary imbalance that outsourcing causes, and partly because we need to keep that capital investment (in machines and buildings and other capital goods that can actually MAKE things) here at home, rather than letting it be done overseas at our expense.
"In fact there's a surplus of "capital," at lest in the sense of invested money seeking good returns.... So we keep getting bubbles due to over-investment, first in.com, then housing... what is the "next big thing" where we could invest to bring real growth?"
The bubbles aren't due to a surplus of capital, per se. I mean they are, but the proximate cause of that surplus is indisputably government monetary policy. They have been keeping interest rates artificially low to "stimulate" the economy (BEFORE the 2001 and 2008 bubble burstings). Easy money means more capital. But it wasn't invested in capital goods, intended to
The thing is: Wall Street anymore is not very "capitalist", in the historic sense of the term.
"Capitalism", in general, refers to making capital investments in goods that in turn will make a profit. Often, that means indirectly and over time: you spend $1M to buy a machine that makes thousands of widgets a day, and sell the widgets for $5.00 each.
However, with the current obsession with turnover and a quick dollar, what you end up with on Wall Street is really much more pure money speculation, which doesn't have much in the way of capitalist underpinnings. In fact it is a lot more like gambling, which has been around a lot longer than capitalism has.
We simply haven't been seeing the long-term investment in capital goods, which in turn power a robust economy, and at one time made the US the greatest economy in the world.
Until we see a return to something resembling real capitalism (and it still does happen, just not so much on Wall Street anymore), we will continue to have economic problems. A corollary to that is something I have been saying for a long time: Washington needs to stop concentrating on viewing Wall Street as some kind of driver for the economy. That's a false economy. Reasoning: anything that can lose a large percentage of itself overnight is not a stable thing on which to base a real economy. Keynesian "created" fiat dollars can disappear just as fast as they are created, as we saw quite clearly in 2008.
And for similar reasons, I believe HFT should be outlawed. It isn't even a real market anymore; it's simply a contest to see who can spot a discrepancy in perceived value the fastest.
While it is certainly possible, under relatively rare circumstances, for an economy to respond fairly rapidly to changing situations, I find the claim that it responded THAT rapidly, THAT often, to be somewhat less than credible. There are reasons for my saying that: especially with transportation being as slow as it was, and economies being more localized, I simply do not see how the inherent inertia of any economy could actually swing so wildly as that chart claims that it did.
I can only conclude that the author mistook temporary changes in the proxies he used for money value in his studies to mean actual changes in the economy, when actual economic changes have historically tended to be much slower.
In other words, mistaking momentary changes in economic indicators to mean actual changes in the economy. For example: that would be akin to saying that a strong but only 1-week-long dip in the stock market actually meant that the money supply shortened up and unemployment went rampant... but only for that week. When in fact other factors would tend to smooth it out, rendering it almost unnoticeable at any larger scale.
In either case, I am going to find a copy of that book, and see just how the author justifies those rather extraordinary claims.
Okay, I was referring to the data on page 1. However, I do not find the chart on page 6 to be very credible (which, I suppose, means that I will also have to take page 1 with a grain of salt from now on).
That chart essentially says that inflation rates went from near 40% in a single year (for one example from the chart) to -10% the following year, and so on, rather consistently. I find such a claim to be incredible. No economy could function at all with such wide swings if, as this chart claims, they were not just common but nearly continuous.
Further, even if that chart represents reality, which I very strongly question, any savings at all on the part of citizens would render such wild but extremely transient swings irrelevant (which is one of the reasons I say it is rather difficult to credit this chart as being even remotely realistic).
"People repeat this lie often in hopes that it will somehow become true. Sorry, it never will. Periods of high (double digit) inflation and deflation were common before we left the gold standard, and the economy could not be described as "healthy" according to any modern definition of healthy."
It is you who are confused. The fiat currency came along BEFORE we abandoned the gold standard. Further, I was referring to the period BEFORE the Fed existed. And as you can see by that same chart you linked to, the "price level" for the entire 300 years (okay, more like 250 in that chart) remained pretty darned flat... EXCEPT around wartime, which is exactly what I wrote.
I don't know what point you were trying to make, but you linked to almost exactly the same data that I was talking about. This chart very clearly indicates that the only periods of high inflation were when the government borrowed money to finance wars, and then it returned to roughly the previous levels.
Perhaps you misunderstood what I was trying to say. But thanks for posting that chart and proving my point for me.
Slashdot Mirror
"I like how you can assert out of thin air that current capitalism isn't valid capitalism, because of the "historic meaning of 'capitalism'." How am I supposed to even take this as a valid assertion? You seem to be arguing by vigorous handwaving, and appeal to authority."
Not at all. As I mentioned in my other reply to you, I did no such thing.
It is YOU who are doing the handwaving and claiming "semantic drift" where it doesn't actually exist. Look up the current, modern definition of the word "capitalism", and you will find that it relates to the means of production of goods (and perhaps services) in a society.
Risky speculation in markets, then (especially things like money markets where no goods are involved), is not a part of "capitalism". We're talking apples and oranges here. It has nothing at all to do with capitalism, by definition. Current definition. I am aware that you seem to disagree with that definition, but if so don't go pointing at me, because I did not make it up.
I guess I should make myself more clear. I do not disagree that better regulation of the "financial industry" is called for. I happen to agree with that. My issue is with government manipulation of the money supply.
As I pointed out myself, the video is probably overly dramatic. But it is still factual.
I wasn't offering it as an example of any kind of solution to anything; I merely pointed to it as an explanation of how money gets "created".
"And there is every anthropological and psychological reason to believe that family, tribe, religious, and city leaders manipulated and taxed those economies long before we could develop subtleties like banking and stock markets."
I felt it was pretty obvious that what I was referring to was the specific government monetary policy we have experienced over the last (approximately) 80 to 100 years, not whether government control of one sort or another has ever existed. That is completely beside the point.
"Please provide a rigorous and unambiguous way to differentiate stock trading based on speculation from informational goods. I agree that speculation is a bad thing, it's the entire reason for economic bubbles, and boom-and-bust cycles. But when me and my friends sat down and declared, "we can use magic to enforce rules and regulations, how would we stop trading based on speculation". We realized that there was no way to do it, even with omnipotent magic."
I do not know of a way to do that. But what you can do is start using actual assets and production capacity as a measure of real wealth, rather than fictitious fiat dollars "created" by speculative trade, which have had this annoying tendency to disappear without warning.
Sheesh. I meant to hit "preview" and hit publish instead. Pardon the typographical slips.
"No theory is perfect, and this should be recognized by any valid scientist. You know, Creationists think that the Bible is exactly right about the world, and that evolutionary theory has been 100% wrong. It's easy to make such assertions when your entire theory is unfalsifiable."
I'm glad you brought science into this, because that is exactly where Austrian economics shines and Keynesian economics fails. Further, as far as I know nobody (except for you) has tried to make a credible claim that Austrian economics is essentially unfalsifiable. If you think that, then you really don't know much about it. A little history is in order.
In regard to that "main criticism" of Austrian economics, i.e. the assertion that it "lacks scientific rigor": if you know your history of economics, then you know that the Austrian school was around before Keynes, and in fact (you can find some of this in that same Wikipedia article), the present theory and mathematics of mainstream economics owe a great deal to Austrian economists, who first formulated much of it. The supposed "lack of rigor" of the Austrian school refers merely to their assertion that certain elements of the economy cannot be precisely calculated, because there are too many variables. There is nothing at all "unscientific" about that observation.
Any scientist worth his salt will tell you: a theory is only as good as its ability to predict. Keynesians like to point at their equations, charts and graphs (again, many of which were first invented by Austrians), and claim that therefore, their theory is "scientific". However, all the charts and graphs in the world do you no good if your theory can't predict anything. So let's look at some history, shall we?
Again, in that same Wikipedia article, you can see where Austrian-school economists publicly predicted the economic crash of 1929, while proto-Keynesian ("contemporary") economist Fisher, echoing the mainstream view, equally publicly (and quite famously) claimed that the economy was doing fine, right up until the actual crash.
More history: Austrian theory allows (and allowed) for the existence of high inflation and high unemployment at the same time, now commonly called "stagflation". Up until 1974 when it actually happened, Keynesian economics, with its foundations firmly rooted in A href="http://en.wikipedia.org/wiki/File:NAIRU-SR-and-LR.svg">the Phillips curve, not only did not predict stagflation, but denied that it could even exist. It was against fundamental principles of Keynesian theory, which had to be revised when it did in fact happen. I might add that mainstream Keynesians still rely on the Phillips curve, and and teach and preach about this inverse relationship, even though it was disproved by real life in the 70s and early 80s. That's not very "scientific".
I'm not claiming here that Austrian economists actually predicted that stagflation... but their theory at least allowed for it, while Keynesian theory did not... and still does not. The reaction of the Keynesians to stagflation was to scramble to find some kind of explanation for it, and they came up with "supply shocks", which supposedly render the Phillips curve ineffective. However, pretty much by definition it is impossible to predict when supply shocks will occur, and therefore when the Phillips curve will be valid or not. Which renders it -- a staple of Keynesian economic "theory" -- useless for predictions and therefore nothing but an unscientific abstract concept.
Austrians pointed out the existence of, and predicted the crash of, the 2001 bubble. Keynesians did not. In fact, yet again Keyensians were caught with their pants down, proclaiming that the market was doing great and to "Come on in! The water's fine!"
As I have already shown, Austrians (as represented by Peter Schiff) were also right about the 2008 econo
"However, you can't just reject it as "capitalism" because it makes the word look bad."
I didn't. Nowhere did I state any such thing.
What I wrote was: it isn't "capitalism" so much as it is gambling, because it doesn't fit the historic meaning of the word "capitalism".
Capitalism relates to the means of production and how that is financed. If your company does not produce some kind of goods or services (just as I stated earlier), then "capitalism" doesn't apply.
"From my understanding, stronger regulation of the financial sector essentially has the same effect of having a gold-backed currency, with the advantage that there is actually a degree of control over the market fluctuations."
We disagree in principle. Historically, the most stable and robust economy has been one of free market, free of outside "control".
We have had 80 years of direct government manipulation of the economy, and it has almost invariably resulted in bad consequences, throughout the entire period.
I do not agree that more government control, even if it is more effective, is the answer. Frankly I believe, and the preponderance of the evidence shows, that if governmental control were more effective, things would be that much more the worse.
I'll pass on that, thanks very much.
As for money disappearing, in order to understand that it actually does disappear, you have to understand how it is created in the first place. When faced with the reality of this, many people are actually horrified and choose not to believe. I will admit, that video is perhaps overly dramatic, but it gets the facts pretty straight. (A few minor details are not exact. For example: "I killed the bank" were not Jackson's actual last words, although he did give that answer to the question on his deathbed, on the same day he died. These tiny details do not affect the essential truths told by the video.)
I agree with you about the casino bit. However all of what I have been saying here should indicate to you that I take issue with Michael Moore's blaming of our economic situation on capitalism. On the contrary: it is our deviation from capitalism that has led us to this mess. Modern government monetary policy could not be said to be "capitalism" by any sane person who knew the definition of the term.
I happen to like Michael Moore as a person. However, he tends to get idealism confused with reality, and sound-bites confused with actual theory. That is the most generous statement I am likely to make about him right now.
Perhaps the link I posted earlier will do a better job of explaining what real capital wealth is, than I have. It's late and I am tired. But please note what this man says. He was exactly right about the economy (as Austrian economists have been for quite a while), while all the people following Keynesian theory (official government policy) were 100% wrong.
He explained just exactly what was going to happen, and why.
And as he says: real capital wealth consists of goods and the infrastructure to produce those goods, not whether the stock index is at 12,000 or 13,000. The goods need not necessarily be physical: informational goods are still goods.
To be a bit more specific:
It isn't "physical objects", per se. You are confusing my characterization of fiat dollars (which are, indeed, nothing but smoke with influence) with my description of market trading. They are related but I don't pretend they are the same things.
It is what you are trading for that makes the difference. I was not referring to, say, investing in some commodity (pork bellies is the usual jest) versus stock in some company that you think might go somewhere. There is nothing wrong with investing in the stock of some company... as long as it is a real company and it is doing real things in the economy. Producing some kind of product (whether knowledge, software, paper, or steel), paying employees, and so on.
However, Wall Street has become (has been for some time really) a morass of people investing not in companies with a real future, a "capitalist" investment in the classical sense, but rather in what value their stock is from one day to the next. Which turns it into pretty much money speculation, rather than actual investment in companies that produce real goods over time. (Again, without regard to what those goods are. I don't care if it is software, toilet paper, reports from a consulting engineering company, or adult toys. It's still a real product.)
High-frequency trading has simply taken this idea to an extreme, and exemplified how much Wall Street has become a disease, rather than part of the metabolism.
What a great idea! I would have to think about it for a bit, but my first impression is close to love at first sight.
Well, it isn't. Turning over stocks for short-term profit is gambling, not capitalism. Please look up the historic meaning of "capitalism". It isn't just money-mongering.
"You need to get your perspectives straight. Do you really think HFTs are causing enough harm to the global economy to merit outlawing?
The most harm an HFT has ever caused was the flash crash in May 2010, and that lasted about 20 minutes, and a LOT of rational people made a ton of money when they realized a bomb hadn't gone off somewhere and it was just somebody that wanted to sell a lot at market price without a dark pool."
My perspectives are straight enough. And frankly, I don't give a damn about the "global economy", and neither should anybody else. The current popular concept of "global economy" is a myth based on manipulated fiat currency, and is best ignored. Not that our so-called "leaders" will let us actually ignore it, but nevertheless THAT house of cards needs to fall down, and soon, so that people can get back to genuine, rather than artificially and politically created, economic issues.
Saying "the most harm it's ever done" was a little blip is like saying "the bullet only grazed me". It bears no relationship to the damage it could cause.
"(1) People got greedy to the point of being extremely self-destructive,"
Which people? Consumers? You mean the people who were sold loans when they had inadequate income and credit credentials, and were told by the experts that it was okay, and that they could afford it? Oh, yeah. Those greedy people. The ones who believed what they were told by the government, the news, and the finance companies. We simply must protect America from those "greedy" people!!! They wanted homes and were told by all the people in positions of power and knowledge that they could afford it. They must be evil.
"(2) Banks got greedy on people's greed and then went under with them when people defaulted across the country."
Well, the first part is right except for the "people's greed" part, because it was in fact the banks and finance companies who talked them into taking those loans. It wasn't after the fact.
But more to the point is: the banks really didn't go under when the people did. Did they? For the most part, the banks got bailed out, but the people didn't. And the banks knew that would be the case should disaster strike, so they DELIBERATELY made those bad investments. Don't blame it on the consumer. The banks and finance companies deliberately made malinvestments, and they knew full well what they were doing... unlike their victims.
"This all wouldn't have been possible without floating interest rate loans (initially 2% interest for the first three years! Then an effective 12% mortgage on a 30 year loan. Gee, I wonder what's going to happen when middle class Americans have $500,000 mortages at 12%?)"
Nonsense. The government was deliberately keeping interest rates low, and they even said it was to help people buy homes. It was the government's deliberate policy of making interest rates artificially low that caused the malinvestment... that, coupled with the repeal of regulations preventing banks from investing in speculative instruments. We know for indisputable fact that bad loans were being made DELIBERATELY, and then those debts bundled into derivative instruments that were grossly overvalued.
None of this is a secret, and it is ALL due to the banking and finance industries (if you count mortgage companies as finance, which you should), knowingly taking advantage of a regulatory situation which they KNEW would let them get away with murder. Blaming this on the "greed" of consumers, who simply wanted to own a home and were told they could, is grossly distorting the actual picture. The amount of malinvestment and defaults due simply to ARMS had very little to do with the overall picture, OR the dollar value.
"Well, I hate to sound like I defend HFT, but I think the best way to discourage its use is to prove that it doesn't actually do anything valuable."
You have grasped the essence of it, but missed the big picture: Because HFT simply does the same thing, only faster, then in order to prove that it doesn't actually do anything valuable for the real economy, you would have to prove that the stock market, per se, does not do anything valuable for the real economy.
Which is true. But good luck with that. Because people have this idea so entrenched in their minds that they let it effect the real economy, even when it shouldn't.
"Wall street is not a real economy but they have *MAJOR* effects on our economy. To minimize them is not right either. But the fed is made up from people that come from there. So they do what they know..."
I do not agree with your assessment of capital investment, but this is certainly true as far as it goes. On the other hand, there are subtleties you do not account for.
First off, they do have major effects on our economy, but that's simply because we let them. All of Keynesian economic theory is wrapped around the idea that money "created" by the stock market (and fractional-reserve banking, but that's another issue) is "real" money.
And yet we have seen that it is not real money. Many times in history, but most recently in 2008, we have experienced that money going "poof!" back into the thin air from which it was created. And unfortunately (no pun intended), it has a tendency to go "poof" a lot faster than it was created in the first place.
If we did not treat that as real money... if we again had, say, a gold standard... then this could not happen. Markets could still collapse, don't get me wrong. But SOMEBODY would still have the money. It couldn't simply disappear.
"It was also an effect of 15 years of unwinding of the 1930s laws that protected the rest of us from those silly antics."
Agreed 100%. You obviously know your history and have been paying attention. +10.
"HFT is just a game to see who can screw each other faster. Making millions off the backs of others all in the name of 'liquidity'."
Again, agreed. This is basically what I was saying, in different words.
We do not disagree so much. Except about the capital investment thing. On that we will have to agree to disagree.
"Keynes didn't invent fiat currency. There's nothing Keynesian about credit default swaps."
I agree. I wasn't implying that the concept of fiat currency was Keynesian; the Fed was created before he wrote his treatises on economics.
However, Keynesian monetary policy could not exist without fiat currency. When the value of money is set by a free market of goods, government manipulation of the money supply via interest rates (which is what Keynesian theory is all about) is simply not possible.
"Keynesianism is the idea that a recession is when the private sector prefers to hold on to cash and financial assets rather than buying stuff and building capital assets. With that basic model of the economy, Keynes argues that in a recession, the right thing for the government to do is to borrow and spend more money to increase demand.
No, Keynesianism is not just one idea, but if it could be summed up as a single idea, that idea would be that the government can control the economy by influencing the money supply via interest rates.
It's simple, fairly obvious, and it works. Because it works, the world's financial elites and power brokers have refused to allow it to be tried this time around."
Wrong. It's simple, fairly obvious, and it DOESN'T work. If it did, 80 years of Keynesian theory would not have landed us in this mess.
I meant to add:
Q: How can we bring jobs back home?
A: By directly -- and heavily -- taxing companies that outsource labor and manufacturing. This avoids the pitfalls of tariffs: we would not be blocking trade from coming into or going out of the country. However, we would be demanding compensation for our economy, from the companies that have been so harming it by their practices. That's about as fair as it gets.
(It's also not a subsidy by the government... so it avoids those problems, too. Instead, it is a source of revenue TO the government.)
"I agree HFT is rubbish, but where do you see justification for long-term investment in capital goods in the US? It seems that industry is being moved to where it can be operated more cheaply - there is no economic justification for more investment here."
Industry WAS being moved to where it can operate more cheaply. And there is plenty of justification. If you're American.
First, let me say this and get it out of the way: China's economy has been slowing. It's not exactly something they advertise, but it's true nevertheless. Further (and I won't claim this is directly related): there is a new Chinese "consumer class" that scarcely existed before, and they are hankering for goods that are not made at home. But having said that, I'm not going to belabor it, and instead I will concentrate on the U.S.
We have learned some things over the last couple of decades. One of the things we have learned is that regardless of whether it results in cheaper goods, outsourcing is bad for the economy. We know for a fact (it is not a guess or just a theory anymore) that it costs jobs at home, and those jobs are more valuable to our economy than the cheaper goods are.
Further, outsourcing is not "fair trade", because it artificially bypasses exchange rates. It is easy enough to say that "U.S. labor can't compete with foreign labor for the same amount of pay". Which is a true statement... but it's only half the story. It's a lie by omission. Because we aren't really competing on an equal basis. Let me construct a simplified example to illustrate the point (numbers just pulled out of the air to make the point):
Company X wants to hire people to manufacture widgets. It can hire unskilled Americans for $10 per hour, or Crotobaltoslavonian workers for $2 per hour. But here's the thing: In America, that $10 buys about 5 pounds of rice. In Crotobaltoslavonia, that $2 buys 10 pounds of rice. So in actual purchasing power, you're paying that Crotobaltoslavonian the equivalent of $20 per hour in America. Americans literally can't compete for that amount because it doesn't pay them enough to eat... in THEIR economy.
And that's the whole point. Economies are different. That's just the reality of the situation. And that's why we have exchange rates... to keep trading FAIR between countries. But hiring labor in a foreign country, in effect, bypasses that exchange rate, and so it is not a "fair trade". Americans are hurt in the process... even if rich Company X gets to keep a few more dollars. We are exporting even more dollars than what they keep as a result... and that doesn't help our economy, either. So it hurts in several different ways, not just one.
Savvy companies actually realize this, but they just don't care. Which is pretty unethical, if you ask me. They are willing to sacrifice your $10 so they can make an extra $1 in eventual profits. And you should be angry about that.
Plain and simple: we need to bring the manufacturing jobs back home. Partly because of the direct monetary imbalance that outsourcing causes, and partly because we need to keep that capital investment (in machines and buildings and other capital goods that can actually MAKE things) here at home, rather than letting it be done overseas at our expense.
"In fact there's a surplus of "capital," at lest in the sense of invested money seeking good returns. ... So we keep getting bubbles due to over-investment, first in .com, then housing... what is the "next big thing" where we could invest to bring real growth?"
The bubbles aren't due to a surplus of capital, per se. I mean they are, but the proximate cause of that surplus is indisputably government monetary policy. They have been keeping interest rates artificially low to "stimulate" the economy (BEFORE the 2001 and 2008 bubble burstings). Easy money means more capital. But it wasn't invested in capital goods, intended to
The thing is: Wall Street anymore is not very "capitalist", in the historic sense of the term.
"Capitalism", in general, refers to making capital investments in goods that in turn will make a profit. Often, that means indirectly and over time: you spend $1M to buy a machine that makes thousands of widgets a day, and sell the widgets for $5.00 each.
However, with the current obsession with turnover and a quick dollar, what you end up with on Wall Street is really much more pure money speculation, which doesn't have much in the way of capitalist underpinnings. In fact it is a lot more like gambling, which has been around a lot longer than capitalism has.
We simply haven't been seeing the long-term investment in capital goods, which in turn power a robust economy, and at one time made the US the greatest economy in the world.
Until we see a return to something resembling real capitalism (and it still does happen, just not so much on Wall Street anymore), we will continue to have economic problems. A corollary to that is something I have been saying for a long time: Washington needs to stop concentrating on viewing Wall Street as some kind of driver for the economy. That's a false economy. Reasoning: anything that can lose a large percentage of itself overnight is not a stable thing on which to base a real economy. Keynesian "created" fiat dollars can disappear just as fast as they are created, as we saw quite clearly in 2008.
And for similar reasons, I believe HFT should be outlawed. It isn't even a real market anymore; it's simply a contest to see who can spot a discrepancy in perceived value the fastest.
(In case you didn't look at the timestamps, the above comment was made first, referring only to the chart on page 1.)
Let me clarify my statement just a little:
While it is certainly possible, under relatively rare circumstances, for an economy to respond fairly rapidly to changing situations, I find the claim that it responded THAT rapidly, THAT often, to be somewhat less than credible. There are reasons for my saying that: especially with transportation being as slow as it was, and economies being more localized, I simply do not see how the inherent inertia of any economy could actually swing so wildly as that chart claims that it did.
I can only conclude that the author mistook temporary changes in the proxies he used for money value in his studies to mean actual changes in the economy, when actual economic changes have historically tended to be much slower.
In other words, mistaking momentary changes in economic indicators to mean actual changes in the economy. For example: that would be akin to saying that a strong but only 1-week-long dip in the stock market actually meant that the money supply shortened up and unemployment went rampant... but only for that week. When in fact other factors would tend to smooth it out, rendering it almost unnoticeable at any larger scale.
In either case, I am going to find a copy of that book, and see just how the author justifies those rather extraordinary claims.
Okay, I was referring to the data on page 1. However, I do not find the chart on page 6 to be very credible (which, I suppose, means that I will also have to take page 1 with a grain of salt from now on).
That chart essentially says that inflation rates went from near 40% in a single year (for one example from the chart) to -10% the following year, and so on, rather consistently. I find such a claim to be incredible. No economy could function at all with such wide swings if, as this chart claims, they were not just common but nearly continuous.
Further, even if that chart represents reality, which I very strongly question, any savings at all on the part of citizens would render such wild but extremely transient swings irrelevant (which is one of the reasons I say it is rather difficult to credit this chart as being even remotely realistic).
"People repeat this lie often in hopes that it will somehow become true. Sorry, it never will. Periods of high (double digit) inflation and deflation were common before we left the gold standard, and the economy could not be described as "healthy" according to any modern definition of healthy."
It is you who are confused. The fiat currency came along BEFORE we abandoned the gold standard. Further, I was referring to the period BEFORE the Fed existed. And as you can see by that same chart you linked to, the "price level" for the entire 300 years (okay, more like 250 in that chart) remained pretty darned flat... EXCEPT around wartime, which is exactly what I wrote.
I don't know what point you were trying to make, but you linked to almost exactly the same data that I was talking about. This chart very clearly indicates that the only periods of high inflation were when the government borrowed money to finance wars, and then it returned to roughly the previous levels.
Perhaps you misunderstood what I was trying to say. But thanks for posting that chart and proving my point for me.
Damn typos.
histor = history
"Now, while we might reasonably expect such a relationship to exist in an extremely rough sense some of the time..."