Road traffic has fallen for the first time in 30 years after high fuel prices
You mean prices and incentives matter?
Road traffic has fallen for the first time in 30 years after high fuel prices
You mean prices and incentives matter?
Up until this time, nation-states had complete control over their economies and finances.
What? No nation state has ever had complete control over their economy.
Even the Soviets couldn\’t control everything in their economy.
When someone starts out a piece talking about the global economy by making that claim then, well, it\’s something of a problem, isn\’t it?
Brown has rediscovered an earlier hero, John Maynard Keynes, an advocate of government spending during recessions – and, less cited by Brown, budget surpluses during boom times.
The outstanding fact of intellectual history of the last hundred years is the struggle against economics.
Is that there\’s something different about this recession.
America\’s struggling newspaper industry suffered another blow from the financial turmoil as the Los Angeles Times announced on Friday it was cutting hundreds of jobs and downsizing the paper in the fight against "economic realities".
The paper, one of 12 owned by the media giant, The Tribune Company, is shedding 300 positions and will cut the number of daily sections from five to four.
In a memo to staff, the paper\’s publisher Eddy Hartenstein said the cuts "are designed to help us deal with the economic realities of the day".
"Not a day goes by that we don\’t give our readers the latest news and analysis on the deepening troubles of the US economy," Hartenstein wrote. "The same challenges that face the companies we report about also are affecting us."
But the difference isn\’t in the collapse of the banking system or the contraction of globalisation (although those exist) but in the media.
For the media is facing the usual recessionary problems, the fall in advertising and so on. But they are also suffering from the structural change taking place in the industry. Yes, blogs, YouTube, Twitter, digital blah blah blah. And in the reporting of the wider economic problems the two things are getting slightly confused.
No, I\’m not saying that the media being gloomy is making everything worse, rather, that some of the gloom in the media isn\’t from the general economic problems but is from the structural stresses that they alone face. Everything is thus being painted as being rather darker than it actually is.
Current estimates are that GDP will shrink by 2-3%, peak to trough. This is giving up one single year\’s growth (and of course missing out on another years\’ such) which isn\’t the death knell of capitalism in any manner at all. Given that it\’s only capitalism which produces that 2-3% consistent growth over the decades and centuries.
Anyway, that\’s my pet theory of the week. That because, for technological reasons, the media is screwed long term, they\’re more gloomy than they ought to be about the minor shafting the whole economy is getting.
Ooour Wullie is at it again. Here\’s the bare bones of his solution.
There are further positive measures. The government will guarantee any new issues of asset-backed securities, the packaged-up mortgages and suchlike that can be bought and sold, to get finance flowing again. It will even have the Bank of England buy them. This should allow home buyers to get mortgages again. It falls short of the mobilisation that James Crosby called for in his report on mortgage finance, but it has the advantage of extending credit to companies that cannot refinance their debts. It also allows the Bank, when it buys the securities, effectively to print money, a crucial breakthrough.
That Freddie Mac and Fannie Mae being built in England\’s green and pleasant land. Worked real well for the Americans, didn\’t they?
The government should go further. Northern Rock should be the government housing bank.It should be joined by a new national infrastructure bank and even a long-term industrial investment bank.
That would be like the German Landesbanks then. Which have worked so well for Germany, haven\’t they?
There needs to be an international effort to create simple clearing banks by outlawing the ability to mix commercial and so-called "investment" banking.
And that\’s Glass Steagal again. Something which the absence of hasn\’t in fact caused the current problems.
Betting our cash for personal gain should be outlawed.
Eh? So it is to be illegal to run a corporation now? What in tarnation does Will think that a company is? You stick money in via a share issue and the management punts it for pay. That\’s what a company actually is, a method of betting our cash for their gain: with us getting some of that gain if they bet right.
Our companies have chased after too high returns for too long and undervalued innovation and production.
So, umm, Will is suggesting that innovation and production will produce lower returns and yet, simultaneously, that this is something we want companies to pursue? That is, we should deliberately direct the economy so as to make us poorer than we could be?
And this man gets paid to write on economics?
AT BOTTOM, the argument between the guys who quote Hayek and the guys who quote Marx is simple enough. It centres on capitalism’s ability to offer the things that people who very sensibly do not give a toss about ideology – and that’s the vast majority of the public, of course – seem most to want.
The neoliberal right stridently insists that the free market provides – or in more extremist readings, would provide if completely untrammelled – both a continual improvement in living standards and full employment. Moreover, free markets are positively correlated to political democracy, or even \’freedom\’.
The left’s interventionist proposals, in either Marxist or social democratic/Keynesian variants, are routinely castigated as a one-way ticket to North Korean Hell, by express or stopping train as appropriate.
It has, in truth, not always been an easy case to counter, especially at the popular level.
Well, yes, The bit I don\’t understand though is that Dave thinks this is a bad thing.
Figures published on Friday are likely to provide official confirmation that Britain is in recession for the first time since the early 1990s.
Analysts expect the economy to have shrunk a dramatic 1.2pc in the final three months of the year after contracting 0.6pc in the third quarter of 2008.
1.8% (ignoring compounding). That\’s the fall in value added. The sort of amount that a roughly liberal capitalist economy grows by each 6 or 8 months. As indeed our own has for a couple of centuries or so. With, it has to be admitted, the odd hiccup.
But I\’m still not sure that the existence of such hiccups, given the long term success of the system, is quite as powerful an argument for the "death of capitalism" as some seem to think.
What comes next is going to make the various arguments all that much more interesting of course…
A stable world, no unemployment, a social compact where no one is forgotten:
It has been so on Himeshima for 40 years and suddenly, faced with the most alarming economic downturn since the Second World War, everyone from the central Government in Tokyo to the country\’s biggest industrial conglomerates is desperate to copy its secret: work sharing.
The island\’s magic formula amounts to a four-decade experiment in job preservation, a running agreement by employees to sacrifice wages and regular working hours for the sake of keeping everybody in work. Everything on Himeshima — the local bureaucracy, the ferry company, the prawn farms, the clinic and the care home — joins in.
However, you can\’t have it all. There is a cost to not allowing the gales of creative destruction to run through such a society.
Even though wages have remained more or less the same for decades,
That\’s the cost of a static society. It\’s static.
The one thing that makes capitalism worthwhile is that it\’s the only system we\’ve ever found or tried that leads to a sustained and continual growth in the living standards of the average bloke. One to two percent per year, year after year, decades and centuries. Average incomes in 1750 per capita were roughly what average incomes were per capita in AD100. Now they\’re, in those places that have had some variant of capitalism, for some period of time, around 12 times that 1750 level. At least.
No, you can\’t have it all. Make your choice please.
One of my pet themes, I know, that capitalism and free (ish) markets are two entirely different things.
John Lewis has been crowned Britain\’s favourite shop.
John Lewis is clearly competing very well indeed in a free(ish) market. But it\’s not a capitalist organisation, it\’s a workers\’ co-op.
There is no necessity at all for all organisations in a market economy to be capitalist. It might well be that it\’s the best ownership system for some and not others (certainly true), it might even be that it\’s not the best system for any (not that I would go that far).
The way to find out of course is to have a free(ish) market in methods of organisation and ownership and see what happens.
If we go by the Adam Smith definition of wealth creation, as the combination of materials, labour, land, and technology in such a way as to capture a profit (excess above the cost of production),
That isn\’t, I think, quite the "Adam Smith" definition of wealth creation.
Firstly, he would use "land labour and capital" as the description of what must be combined. Secondly, he didn\’t equate wealth creation and profit in quite that manner. Certainly, making a profit by such a combination makes wealth for the person who receives the profits. But that isn\’t, really, at the heart of what Smith thought wealth creation was all about.
Rather, it\’s the division of labour, the specialisation that such division allows and the trade of the subsequent higher production is what creates "wealth".
Entrepreneurs, capitalists, struggling to make a profit, these might, perhaps, be thought of as the proximate cause of wealth creation in the Smithian universe, but the ultimate cause is the division of labour, specialisation and subsequent trade that such facilitate.
This different emphasis does make a difference though: it\’s possible to imagine an economy where wealth is indeed increasing and yet no profits are being made…..
Price-conscious customers deserted Pound World in Poole, Dorset when they realised that the same products were available 1p cheaper on the other side of the street.
The discount shop did a brisk trade when it started business in June but sales fell by 70 per cent after 99p Stores opened last month. Now bosses have decided that they cannot compete, and the store shut down on Saturday.
Strictly for economics geeks though…..while it\’s obvious that neither the supply nor demand curves are continuous, rather they are discrete, out in the real world it still seems to be close enough to the former to still be a reasonable working hypothesis.
I rang Emma, suddenly fearful that she and her husband Matthew Rice might bow to the realities of modern management and flee Stoke for Indonesia. "No way!" she said. They\’re building a new factory, only yards from their Victorian one in Lichfield Street, Hanley. "Stoke really works for us. There\’s a brilliant workforce, they\’re so skilled, their shifts are all organised to suit them. And having our manufacturing close by – we live in Oxford – means we can switch it on and off. Manufacturing\’s HARD, you know. You always want to make the things you\’re good at rather than things the customer wants to buy.
"Being in Stoke, we can stop things quickly that the customer\’s not buying, and change. You couldn\’t do that if it was thousands of miles away in China." So why did everybody else go to China? "Lemmings!" she said (it was the only printable part of her answer.)
This is part of the answer as to why China\’s not going to end up manufacturing everything. "Clustering" and economic geography still matter. If you\’ve got a skilled workforce, which Stoke does indeed have, then it can be cheaper to go to where those skills are rather than train up new people….at almost whatever wage rate. There\’s also all of the ancillary skills available. In terms of potteries (about which I know nothing) we might talk about all of the support services like kiln building and maintenance, supply of glazes, of raw materials, as well as the fact that there\’s a huge reserve of skill and talent in the town.
Just as an example, despite the fact that the steel industry has left Sheffield, it\’s still the centre of the steel support industry. Still the centre for ferro-alloys. Because that\’s where the people who know how to make them are.
In essence, we\’re talking about total productivity rather than just labour rate or labour productivity.
As to the second part, about changing production in response to consumer demand. A few years ago my next door neighbours ran a swimwear manufacturing consultancy. I recall asking why they were in Portugal? Surely, all this was made in China, or Mauritius, or Lesotho or somewhere?
Well, yes and no. The basic orders for the season were indeed made in such places. But when they saw what was selling, when they saw what needed to be restocked, then they turned to the factories in Portugal and Spain. For turnaround times (including the all important transport times) were, at the expense of higher wages rates, much lower, enabling them to restock fashionable items while they were still fashionable, still this season\’s. Thus the Portuguese are adding the flexible part to the basic mass production that is done in cheaper parts of the world.
It just ain\’t all about wage rates, which is why we\’re not going to see the disappearance of even textile manufacturing, or potteries, from the high wage world.
This doesn\’t sound right to me at all.
Established in Ireland in 1990, Dell employed more than 4,500 staff in Ireland at its height and is the country’s biggest exporter and second largest company.
It accounts for approximately 5 per cent of Irish GDP and last year contributed €140m to the south western economy in wages alone.
Eh? Out of a population of 4.something million, 4,500 create 5% of GDP? Nonsense! € 140 million in wages against a GDP of $ 188 billion? Absurd!
I fear that what the reporter is done is compared turnover of that factory with Eire\’s GDP. Which is nonsense. I\’m not even sure it makes sense if you do that. $ 9 billion turnover from one factory and 4,500 jobs? Even that\’s a stretch, don\’t you think?
Anyway, the amount that a factory or company adds to GDP is the value added by that company or factory. Not the pure turnover. For GDP itself is a measure of value added, not turnover. Buying in components from Asia, plugging them together and re-exporting them will indeed provide a large turnover. But not a large amount of value added.
OK, prizes and lashings of ginger beer for the people who find this being repeated by the credulous.
Richard Murphy (and I quote in full, so that you get the full flavour):
I thought I’d finished with Tim Worstall. But not quite as it turns out, for he left a comment on this blog yesterday which really does blow his whole position apart.
It is impossible to suppose that a man who can argue (as you did in the Guardian, very recently) that “Things in markets are worth what the markets say they are worth” is a true heir of [Adam] Smith
His response? This:
As I’ve said before, no one thinks that all markets all the time produces the optimal allocation of resources.
The argument is not over whether markets *always* produce either “just and moral” prices, as opposed to simply market prices, or whether they *always* produce an optimal allocation of resources. It’s over when and where do they and when and where do they not.
That’s fine Tim. I agree. But let’s be clear what you have conceded here. What you’re saying is:
1) Markets don’t necessarily produce the optimal allocation of resources;
2) We don’t know when they do, and when they don’t;
3) In that case the economics you espouse provides us with no useful information – we’re left making our own choices;
4) In that case you either can’t sustain your claim that economics is a rational science, or alternatively you can say it is, but the results it produces are of no use to anyone;
5) As a result economic decisions are always subjective;
6) The economic theory you espouse can never be used to justify intervention in the economy because it is clear that it cannot predict optimal outcomes, and we could not tell is those had been achieved in any event.
Put bluntly, this means you’re about as far away from objectivity as it is possible to get: you pretend you’re objective when you know you’re not. That’s not just a failure of objectivity and a lapse into subjectivity, it’s rank hypocrisy.
And it’s rank hypocrisy that you use for a particular purpose, which is always to favour markets when they suit the well off and to oppose regulation when it suits the least well off. This is readily apparent from your argument against the minimum wage recently where you said there was a moral argument for abolition because this interfered with market outcomes: market outcomes you now admit you cannot predict. The only morality on offer therefore was your own, designed in this case to harm the well-being of those on the lowest pay in our society.
At some points over the last couple of weeks I seriously wondered why I bothered to engage with you. Now I know two things: one you definitely do not know what you’re arguing, and second that all the arguments you and your ASI colleagues put forward for the supremacy of the market are pure bunkum: they’re simply a subjective argument for the endowment of favour on those you choose.
It was worth getting to this point. The argument with you has been won. I’m satisfied with that outcome. So please don’t bother me again: it’s now abundantly clear it’s not worth my time dealing with you or your like.
I\’m not really sure what to do here other than snigger.
1), yes, of course, we all agree that markets and markets alone do not necessarily produce the optimal allocation of resources. I\’ve already in this (long) series pointed to any number of such examples.
2) We don\’t know when they do and when they don\’t? Blimey! So what is this economics thing then? It is, at least in part, a study of when they do and when they don\’t. As above, I have given a number of examples about when economics (no, not "neo-liberal" economics, not "right wing", not anything other than simply the standard economic toolkit) tells us that pure and unadorned markets do not give us the optimal allocation of resources. Externalities for example, pollution is a good one. Ronald Coase pointed out that a pure market solution may or may not work: it depends upon transaction costs. Alan Walters (from his Times obituary: " In 1968 he published the Economics of Road User Charges,"….the paper that led directly to the London Congestion Charge. Again, a study iof how we deal with an externality and in this case, one where the transaction costs make a pure market solution impossible). Or the entire system of copyrights and patents: we think that creation is a public good, public goods are undersupplied in a pure market because the creator cannot appropriate the value that is being created. Thus we rig said markets to get to a better, if not entirely optimal, outcome.
3) No, economics informs those choices.
4) As points 2 and 3 are false, then so is the conclusion, 4, drawn from them.
5) Now there is indeed subjectivity in the system. Of course there is. But it\’s not in the economics. The statement that "a very high minimum wage will cause unemployment" is not subjective. It\’s a statement of the blindingly obvious. Similarly, the statement " a very low minimum wage will make no damn difference" is not subjective, it\’s similarly a truth. "The current minimum wage has some good effects and some bad effects" is yet again, simply a truth. The subjectivity somes when someone says, "I think the good effects are worth the bad", or, the opposite "I think the bad outweighs the good".
Economics can be and is used to tell us what those effects are: whether we prefer one set to the other is subjective, not the analysis of what they are.
6) The economics I espouse is indeed used to justify interventions in the economy. It\’s used to do that each and every hour of each and every day. See, say, carbon taxes, cap and trade, congestion charges, copyrights, patents, anti-monopoly laws, and so on nearly ad infinitum.
This plays onto the morality thing mentioned. Morality is of course personal and is thus subjective. But that\’s how we make the choices between the various options that economics reveals are available to us. That we might differ here is unsurprising: but to reject economics itself because it reveals those choices is absurd.
Worth remembering what I was actually arguing for as a moral precept there as well. That if we, societally, wish to change the outcomes of the market pricing mechanism then we, collectively and societally, have to be willing to pay to do so. Rather than dumping the costs onto some subset of society.
I find it very hard to see that as an immoral position but do agree that it\’s not an economic point, it\’s a subjective one.
And as I also argued, we should stop taxing the working poor. how this harms the well-bing of those on the lowest pay in our society I\’m really not sure.
As to who has "won" this argument I\’ll let others decide that. I certainly don\’t think that Richard Murphy has, but then that\’s probably me just being subjective.
This is laughable, coming from Polly.
Cameron\’s plan for retrenchment is economically illiterate, and would be frighteningly dangerous if he were in power.
Economic illiteracy accustaions from Our Pol? However:
Take his plan for a loan guarantee to let banks lend again with the state as guarantor. It sounds good – indeed, the government has already said it will do the same, responding to the Crosby report. Cameron\’s deceit, in his eagerness to cut borrowing, is to pretend he can do it cost-free by raising interest rates enough to cover any losses from failed loans. Nonsense, say those working on the scheme. To make it self-financing, he would have to raise the loan interest rates to many times their present rate, and no one would want them. Guaranteeing loans, some of which would fail, costs some £2bn – but in Cameron\’s fantasy economics he pretends he can both fix this crisis and cut spending.
What\’s rather more sobering is that in this case she\’s actually correct. If the interest charged on loan guarantees is to cover the potential losses, then they would indeed have to be at market interest rates (market interest rates already encompassing those default risks). And the point is that no one\’s all that keen at borrowing at market interest rates, the deficiency this plan is designed to cure.
Whether it\’s a good plan to guarantee such debts is another thing entirely. But as she\’s described the plan, Dave really is being economically illiterate. Which doesn\’t really bode well, when Polly is more clued up than the Leader of the Opposition.
We start from the observation that politicians do what benefits politicians, not necessarily what benefits the populace. It\’s hardly a shocking assumption: we\’re quite happy in all other areas of life to think that self-interest rules. We\’re also quite happy, or at least some of us are, to note that this pursuit of enlightened self-interest does indeed benefit the populace. Think of the butcher and the baker.
So this assumption that politicians do what benefits politicians, how strongly is this held? Here\’s The Observer, probably the most liberal paper in the country. There\’s something of a holdover of the classical liberalism of its past and certainly a healthy dose of "modern liberalsim" although it tends not to be quite as forward in this sense as its sister paper, The Guardian.
You never want a serious crisis to go to waste." The words of Rahm Emanuel, President-elect Obama\’s chief of staff, have clearly caught Gordon Brown\’s attention. As today\’s interview reveals, the prime minister is determined to use the economic crisis to re-establish his credentials as the man best able to lead Britain through troubled times. His certainty of purpose is welcome, but success depends less on rhetoric and more on hard policy.The criticism of Gordon Brown has always been his focus on tactics, not strategy: an obsessive desire to corner the opposition and establish party political dividing lines. It was these characteristics that produced the mess of the 10p tax band abolition and the needless fight over 90 days\’ detention. But now Brown has the chance to shed his partisan image
That certainly reads to me like the essence of public choice economics, that politicians juggle policy so as to cement their own position rather than to actually do anything beneficial, is believed there. Indeed, the very essence of their message there is that Brown should stop doing what he has been doing for the past 12 years and start to think about policy in policy terms, not political.
So, yes, I think we can take it that even the liberals agree.
Hundreds of thousands of lives, perhaps millions, have been lost because of a stupid idea, promoted by stupid people.
Applies just as much to economic stupidities.
In fact, it might apply even more strongly to them.
Now we know that David Ricardo was in fact wrong on this point:
Ricardo\’s prediction that most of national output would end up going to the landlords.
And it got me to musing. Why was he wrong? The Law of Rent does pretty much imply that as a country fills up, as marginal land is brought into production, then more of the economy will indeed end up in the hands of landlords.
And we do indeed see it happening in certain sectors, as in the locations of coffee shops as Tim Harford so elegantly pointed out,.
But we don\’t see it right across the economy. Why?
Apologies to those who have already worked this out…as someone without an advanced training in economics, with only what I come across as I read around, there are times that I come up with explanations that are either wrong or blindingly obvious to those with such advanced educations. Or, as I think is probably the case here, something that someone else pointed out a century or two ago.
Anyway, here goes.
The important point about wages are that they are not set by the productivity of labour on productive land, but by their productivity upon marginal land (rent of course being the other part of it, the residual in this model). OK, that works just fine for farming and as a country fills up with farmers that will end up being the case.
However, farming, where this relationship is demonstrably true, is some 1-2% of our economy. Manufacturing is 16% or so and services the rest (ish). Some services are indeed highly location (I\’m equating that to "productive") dependent, like those coffee shops. However, the vast majority of the economy is actually operating upon marginal land.
Yes, OK, there are advantages to location, you\’ve got clustering and all sorts of such effects which make one place or another better for a specific trade or service (rents in The City certainly show that). But for some huge chunk of the economy where you are, or at least where you are to within some tens of miles, really doesn\’t matter a damn.
And what the land is like underneath your factory or office block is something you really don\’t care about.
So what I\’m edging towards is the idea that while Ricardo could in fact be correct in the supposition, that eventually larger and larger portions of the economy will accrue to landlords, this is dependent upon the country filling up. And as so much of our economy does not depend upon land quality and only mildly upon location, we\’re not full up yet and thus landlords aren\’t getting an ever greater portion of the economy.
Although with zoning and planning permissions politicians are working hard to correct that.
Anyone want to tell me how blazingly stupid this idea is? Or who thought of it first?
From Martin Kelly:
I\’ll give you another example. Britain\’s imposition of free trade on India put its textile industry, 19th Century India\’s best shot at developing an extensive manufacturing base, back 100 years. That was the real, and just about the only, imperial sin committed by the British in India.
I\’ll agree that the strangulation of India\’s textile industry was indeed an Imperial sin but it wasn\’t a sin of free trade. Rather, it was a sin of protectionism.
We imposed the British Factory Acts onto the Indian industry. That is, we insisted that a vastly poorer country could not exploit one of its comparative advantages (its poverty) against our own domestic industries.
There is of course a modern day parallel, all those shouting that there should be labour and environmental codas to trade agreements. People should only be able to export to us if they treat the workers as we would wish to be treated, ignoring the fact that in a vastly poorer country such would mean no jobs, rather than bad jobs by our standards. The same with environmental laws: sorry, but a clean environment is a luxury good and we shouldn\’t be insisting that the poor buy such rather than the food, jobs and incomes which they themselves would prefer.
The exportation of the higher standards that we rich bastards can afford is protectionism now, just as it was when we screwed over the Indian textiles industry.