- Could our society implode on the race issue?
- Business becomes the villain? Is Hollywood Making money from Financial Crises?
- Limited best seller Inside Job: The Looting of the American Savings and Loans
- Now, AT&T, the once proud flagship of American commerce uses outright fraud to boost earnings
- Another New Thought: Helicopter money and fiscal rules
A postscript to the Last Word
Couldn't resist this opening. Health advice takes a back seat for the moment.
There is one underlying truth that theorists disregard and it causes no end of trouble when new proposals are promoted from theory and are put into play.
Mark these words: I don't believe these O&G thoughts have been expressed in such precise terms previously.
[This was expressed in a popularized description in the tsunami thread when the devil's advocate in the war-room was mentioned, message #873.]
The list of these economic factors or elements is endless, almost any issue addressed by the study: beginning with money and credit, including regulation and free markets, deregulation and "betterment" of society, stability and feeding the competitive frenzy, along with a flood of others. There's a limitless number of ways to pair up the grating relationships of economic factors and elements. And, by including the variable force of impact we introduce a limitless variable. Theorists don't have time to deal with that.
It would be difficult to find anything ever benign - or "neutral" in commerce or business, humans can not operate other than as they do, use whatever is handy to pursue your personal goal, which then energizes the element - or elements. But, that benign attitude is not only essential but indispensable for equating economic theory since Jevons introduced the approval of turning economics, basic human activity, into a mathematics game. All of which means: for nearly a century and a half we've been parading confident egoism down a long dark hall which is growing ever darker and leading us into still more darkness toward total confusion. But that's the way it is when an essential first principle is totally disregarded.
It's unfortunate that economic theory has taken the turn it has, which not only leaves us at a dead end but demands we turn back and reset the game plan. None of our theory now allows for calculating not only which elements exert grating incompatibility but to what degree under what circumstances. We are mired in a mindset that does not allow for late entries; thus, we are wandering in circles totally helpless as we await the next eruption from the boiling cauldron of theory we've created on the supposition that things are benign - that they can be reworked on a moment's notice, or worse still, that they will work themselves out - which they cannot and do not.
All that Ostry, et. al. at IMF (in the work saldeck references in her post The Unstable United States) point out in their piece are matters of absence of benign "neutrality". And, they are correct in pairing items as they do; yet not one of the pairs can operate in tandem at a comfortable, compatible or innocent benign pace. In their consideration, debt, exchange rates, financial policy, capital controls, and credit are offered as options, but how? Separately? Or a melange of a little of this and a little of that? - Whatever. - We know these have all been tried and failed before. Another application is certain to produce yet another serving from that boiling cauldron of trouble. Even a discussion of paying down the debt during stable periods would be confronted by the belligerent mass campaign contributors protesting - this is not what they bought and paid for! That would surely render such a proposal inoperable! So that, too, fails the test of operability.
It all traces back to theory: whether found in the catch-all basket of neoliberalism, macroeconomics, macroprudentail, has been put into action, and found to have lost its attraction. It hardly suffices until we cast about looking for the next repeat of another failed policy whose sharp edges have eroded and appears attractive, less threatening again - from a distance, of course!
There are still a number of respected economists who look at most controls with skepticism which is justifiable from an historic perspective. While Fischer inquires after the usefulness of international capital flow controls, while others ask if there is truly benefit in any international trade! Nor, is this new. 1834 saw a publication by one John Rae calling Adam Smith to task for carte blanche embracing international trade and a few other postulates included in Wealth of Nations (including the definition of wealth itself!) with the accusation that Smith was mistaken in his details. His effrot does not go unnoticed; Canada honors Rae today by awarding a prize to the Canadian Economist with "the best research record in the past five years". Rae retains some recognition as a precursor of "endogenous growth theory".
By no means is this current transition over yet or the turmoil it has created been placated, nor is it explicitly and comprehensively defined anywhere with the intensity it has in the tsunami thread and here at Duff's. What happens through this current US presidential campaigning and USA elections is immaterial to the changes under way. We've had the suggestion before us that the stock market serves little more purpose today than feeding the day trading frenzy. Investors disregard it generally except when labeled as "risk". An economist at the St Louis Federal Reserve Bank, Joseph Ciolli, has offered a paper, May 11, 2016, stating that stock markets are not related or responding to the economy and are not a measure of anything economic (nothing new here!),
Outstanding businesses today are resisting IPOs (through the stockmarket, of course) - (which are down significantly recently - 15 out of the 25 most distinguished recently established companies prefer to remain private rather than associate with the wild speculation of day traders (O&G would presume) which can give a corporation a bad name should day trading take an unfavorable turn in its stock and publicize something untrue for the hour's or day's gain. For that matter, stock market volume is down. . . a series of days show a DJIA consistency below 4 bn trading volume recently which includes the HFT boost. It is not dead yet, but there was a reason why it changed hands recently. One might conclude that the NYSE has passed its heyday.
It's all part of the changes underway. Other signs are yet to be highlighted. The current issue of Fortune Magazine carried a cover story, So Long Wall Street: Why Companies are Going and Staying Private.
A second publication delving into the future is the recent IMF Monitor, April, 2016, following on the heels of their April, 2016 issue of the World Economic Outlook, by the same IMF staff - with an opening salvo which suggested to O&G that economists can't handle the problems we face and that responsibility should then be shifted back onto politicians. The presumption then is, if politicians can't respond properly we'll just continue to stagnate and vulnerability will increase. As for the chances of politicians promoting remediation? The Fiscal Monitor notes -
From this starting point it worsens.
Translation of the opening salvo? Politicians do no better than economists. Are either of the two depending on beneficial results only from their policy making? Or, is everyone so busy no one can park their personal problems long enough to devote proper attention to our weak and weakening condition? It shows up in the flagging interest in "consolidation", the reduction of the debt/GDP ratio which has climbed in nearly every global economy since 2009 - and lately at very nearly the same threatening pace as in 2009. All of which should be frightening the bejeebers out of economists, politicians and businessmen; but since they are silent on the subject, they are either cowed by their own short-comings or ashamed of their incompetence in recognizing essential failures in economics and business, both theory and practical application.
The real trouble spots: Weaker global growth; Commodity price decline; Trade slowdown; Tighter financial conditions; and, Geopolitical tensions. Is that enough to begin with? Or, is it too over-whelming to elicit response?
Expect little help from the "advanced Nations" since they adopted a "neutral" stance (and our discussion of "neutral" above may put a new spin on that assessment). However, despite the slim hopes of immediate correction, the title of the latest IMF Fiscal Monitor is "Acting Now, Acting Together". In the face of the "geopolitical tensions" exemplified in the USA as saldeck points out, the publication is very careful, as always. to indicate that "the views expressed in the publication are those of the IMF staff and do not necessarily represent the views of the IMF's Executive Directors or their national authorities" - and it avoids any in depth discussion of the meaning of that "Togetherness" in their title.
In total - head on or on a slant - either way, the message is not encouraging.