Bit weird

This is a tragedy. The core problem over the past few decades was not bankers\’ greed or the complex financial instruments that enabled them to satisfy it. It was the immense pyramids of debt built up by the Anglo-Saxon half of the world, and the equally massive mountains of savings created in the other.

Almost everything that occurred in the past couple of years was, directly or indirectly, a consequence of this.

No one should have let Britain run such large deficits, and the Chinese such vast surpluses, over such a long period. And yet both got away with it, in what must count as the most momentous economic policy failure in modern history.

Those imbalances (the sterile word economists use) created the mountain of money that fed the frenzy of mortgage lending and eventually caused a financial crisis. Part of the problem was that the much-mythologised Bretton Woods agreement was a botched job: it failed to stipulate that the world\’s big exporters and savers – China and Germany, for instance – should be just as responsible for setting right these imbalances as the debtor nations.

Edmund Conway here seems to be equating trade deficits/surpluses with government deficits/surpluses.

As everyone will know, my macro\’s not all that good. I know there\’s a link between the two but it\’s not a one to one equivalence, is it?

As for this:

Some time in the past 12 months, there was a brief window in which we really could have improved capitalism: made it less prone to boom and bust, ensured that levels of inequality would yawn no further apart.

I tend to side with the Austrians here: booms and busts are capitalism, not an aberration. And as for inequality, if that\’s something you worry about a lot (unlike myself) then why would you want to stop the decrease in global inequality that\’s been going on in recent decades?

6 thoughts on “Bit weird”

  1. Thanks for saving me from bothering to read that article. It looked a doubtful proposition from the summary on the DT comment page.

  2. “Edmund Conway here seems to be equating trade deficits/surpluses with government deficits/surpluses.”

    Conway understands economics far too well to make that mistake. The deficits he’s talking about are in general: leading to a build-up of debt. That’s private debt as well as public.

  3. No, he’s not making that mistake. I’m not even sure if the Chinese government did run large budget surpluses.

    He does however seem to misunderstand Bretton Woods, which to all intents and purposes was dead by 1971, and so was a long time ago to be getting the blame now. I suspect he’s getting it confused with the description of US/China economic relations as a ‘Bretton Woods II’, but that was only an academic paper description and by no means universally accepted.

  4. “so was a long time ago to be getting the blame now.”

    If numpty lefties can blame Thatch for all our ills then it’s only fair.

  5. Everything I’ve read by Conaway indicates that he’s hopelessly in love with Keynesian interventionism, so you can’t expect him to get anything right, sadly.

    Also, Austrians don’t believe that “booms and busts are capitalism, not an aberration.” Austrian Business Cycle Theory basically states that booms and busts are caused by government manipulation of the economy, particularly interest rates and credit expansion. Interest rates are set by the central bank, destroying the crucial market information of the price of (borrowing) money, which distorts time preference. In the Boom phase, interest rates are centrally held low, leading to over-borrowing to spend on investments which turn out to be bad in the Bust phase.

    You have to bear in mind that modern macro-economics is based on that idiot Keynes’s assinine idea that economies are driven by consumption and “investment”, the latter of which he defines as any money spent on anything, so long as it’s been borrowed at low interest from a central bank, and that prosperity is directly proportional to this “investment” of his.

    Ergo, if you keep pumping “investment” into the economy at the lowest possible interest rate (his ultimate ideal is zero, in the last chapter of The General Theory), the economy just booms without end.

    Which is bollocks. Keynes had not even a primitive grasp of economics. The man was a charlatan and a fool. The continued adherence to the principles expounded in his damned stupid book is why our economies are in such a goddamned mess all the time.

    If people are going to distort the economy based on the central Keynesian dogmas that-

    a) Saving is evil.

    b) Borrowing is good (it’s “investment”).

    c) People must be forced to consume.

    -don’t be surprised that the economy ends up as a mountain of unsustainable debt. That’s what is being planned into it!

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