End of an Epoch

by Mark English

Something unusual, something historically significant is going on.

Epochal shifts do occur in history, but they usually only become clear in retrospect. One of my professors had a large print of Georges Seurat’s “A Sunday Afternoon on the Island of La Grande Jatte” hanging in his study. It is emblematic of a period (between 1871 and 1914) which came to be known as la belle époque, a time of prosperity and peace and scientific and technological advancement that preceded the horrors of the Great War. Never again would such naïve, unclouded optimism prevail.

The post-World War 2 period was somewhat similar, echoing to some extent that earlier period of optimism. But it was a time of clouded optimism: clouded by the threat of a world-destroying nuclear conflict. It was certainly a period of technological progress and rising prosperity. It was not military conflict which broke the spell this time, however, but rather deep underlying economic and social problems which have only slowly become evident.

I want to focus on two broad indicators, one economic and one social: the first quantitative, the second qualitative.

The quantitative indicator I am referring to relates to debt levels, government and private; boring, I know, but extremely important and relatively easy to grasp. The qualitative indicator relates to levels of trust between different societal groupings and individuals and their relationship to freedom, morality and social cohesion.

Internationally, sovereign debt is at historically very high, if not unprecedented, levels. In the U.S., the national debt currently stands at 20 trillion dollars, or about 100% of GDP. Corporate and household debt is also very high, the latter having returned to the levels that preceded the 2008 crisis. Total U.S. debt (public and private) stands currently at about 350% of GDP. (1)

The situation is quite obviously precarious, not least because a continuance of the status quo is dependent on the very low interest rates which the coordinated activity of central banks has engineered. But central banks don’t have complete control over interest rates. Longer-dated government bonds (seen as indicators of expected inflation, and also as a bellwether of commercial interest rates) will eventually rise, putting severe pressure on highly indebted governments and other borrowers.

Another way of seeing the problem is in terms of the relationship between economic growth and borrowing.  For the last forty years or so, growth has been dependent on increasing levels of borrowing. For the last nine years, loose monetary policy, which has allowed rapidly increasing debt levels, may have forestalled a worldwide recession, but only anemic growth rates have been achieved. The consequences should be obvious to anyone who thinks about it. There are limits to what borrowing can achieve, and responsible planners realize that levels of sovereign and private debt are unsustainably high.

In the case of the United States and many other Western countries, the looming problem of unfunded liabilities – especially relating to pensions and social welfare programs – dwarfs official national debt figures. These promises can never be delivered on, but admitting this would have a high political cost.

There are only two ways out in the long term: default, or inflating away the debt/liabilities (by money printing). I don’t know what the consequences of default (on sovereign debt, say) would be – not good, obviously – but the inflation road is also a dangerous one. Inflation, once it takes hold, is notoriously difficult to contain. Moreover, the sorts of anti-inflationary policies that have succeeded in the past may not be politically possible today.

Already, Western (and Eastern) economies seem to be stalling. Highly indebted households in the U.S. are cutting back on discretionary spending. The endgame – probably beginning with a deflationary crisis which would lead to widespread defaults – may well be approaching. I hope it is, because the longer this debt-based charade continues, the more serious the consequences will be.

No individual or country has a right to a certain standard of living, even if people living in rich countries all too often assume that they do. But, not only can continuing prosperity not be guaranteed, poverty is already with us – even in the still relatively prosperous West. Look at the youth unemployment levels in many European countries, for example. Or the stresses being faced by middle- and lower-income families in America and elsewhere. Or the bleak prospects facing many (most?) retirees.

The loose monetary policies pursued by central banks has had the (presumably unintended) consequence of enriching the few at the expense of the many, as the prices of financial assets and certain categories of real estate have been disproportionately inflated.

Moreover our collective memory of the two World Wars and the Great Depression is now fading. Such knowledge as we have of these times is based more on reading and films than on actual memories or family stories. Having grown up (in the West) during a time of peace and prosperity we might be tempted to assume that what we have experienced is the norm, to see war and poverty as some kind of aberration. But history teaches us otherwise.

Even the years immediately after World War 2 were very tough, especially in Europe. Many areas – including Britain, France, Germany and Scandinavia – were in dire financial straits. The material standard of living was much lower than it is today.

Who is to say, then, that our present levels of prosperity will persist? Why should they? Debt levels strongly suggest that we are living beyond our collective means and have been for some time.

So perhaps the question should be: how can present levels of prosperity persist, given the fact that we have been increasingly dependent on credit and deficit spending by governments to fund our lifestyles?

On the issues of trust and social cohesion, I won’t say much here. The facts are obvious. There has been a progressive erosion of trust between individuals and also between individuals and institutions (such as the media, the traditional professions and the government).

Quite rightly, we are put off by – and cringe at – the patently sexist and racist attitudes of the past (which are so painfully obvious in old movies, for example). But it’s all too easy to write off these times as hopelessly backward and unjust. They were backward and unjust in some respects, but there were also positive elements (like mutual trust and social cohesion), which we have lost.

Understanding past eras always involves an imaginative leap, a certain detachment or disengagement from one’s own world and worldview, based on an understanding that as they are to us so will we be to others in the future. We are naturally inclined to think that our (present) perspective is privileged in some way. It isn’t.

People tell themselves stories about “social progress.” But social progress is impossible to measure in any clear-cut way because you need to take the full picture into account, and this is impossible. Even leaving aside the always-contentious issue of values, there are just too many factors for any model – or any mind – to deal with. And most of these factors are dynamic and interrelated and so not specifiable or listable.

In practice, of course, we do specify discrete factors involving both hard (life expectancy, crime and suicide rates, etc.) and soft data (such as measures of personal happiness). Inevitably, we narrow our focus to concentrate on specific things, like education levels or employment patterns of specific groups, in order to provide measures of general social progress customized to fit our own preoccupations and priorities. But the trouble is, in so doing it’s all too easy to miss other pertinent elements which lurk beyond the edges of our attention.

It’s well to be aware of the radical inadequacy of both our formal and our informal models of the social and economic world. Nassim Taleb has built a career elaborating this point. He talked about black swans, but I would be inclined to favor more medieval or apocalyptic metaphors. The basic point, however, is that an economic crisis would not only overwhelm us in such a way as to wipe out much of the progressive institutional infrastructure which has been built up over the last half-century or so, it would create a whole new set of urgent priorities.

Of course, I do not deny that there has been some real and substantive social progress over recent decades, especially on sexual/gender and racial issues, even if things haven’t worked out quite as the idealists of the 1960s envisaged.

One last point I want to make is that many Western societies – especially European ones – were once much more homogeneous in an ethnic and cultural sense than they are today, and need to be judged in the light of this fact. Such ethnic and/or cultural homogeneity is not in itself necessarily bad, though many assume that it is. (2)

As I have already suggested, one positive feature that most Western countries did undoubtedly share was a high level of social cohesion. Moral norms and conventions did much of the work that laws and regulations do now; individuals, families and professional bodies were accorded a much higher level of autonomy – and so freedom – than they are today.

Was this freedom often abused? Yes it was. But to the extent that you take away people’s autonomy, you are decreasing the scope for the exercise of – and so, in effect, the significance of – personal and professional responsibility. This trend threatens to turn the very notion of personal morality into something of an anachronism or an irrelevance.

I am not a libertarian. I see an important role for government, and for laws and regulations. But the laws – if they are to be respected – must be seen as an expression of generalIy accepted societal norms rather than as an alien imposition. And they should always be crafted so as to provide a real space for ordinary freedoms and the exercise of professional judgment.

NOTES

  1. Until 1971, the dollar was redeemable (by foreign governments) for gold. The French wanted their gold, but there wasn’t enough (if other countries followed suit) and President Nixon “temporarily” suspended that right, breaking the dollar’s last firm link with gold. My understanding is that a deal was immediately done with the Saudis which gave birth to the petrodollar, and it’s that arrangement – which allowed U.S. monetary authorities to greatly expand the monetary base without immediate negative consequences – which is now breaking down. To what extent this arrangement has affected and is affecting foreign policy I am not sure, but I suspect that it has played – and may still be playing – a very significant role.
  1. I don’t deny that such societies are prone to certain forms of intolerance, sometimes ostracizing or oppressing non-conforming groups or individuals. A less serious criticism that is commonly heard is that they are/were boring to live in. Mitigating this last point to some extent in respect of the past is the fact that the wider world used to be less homogenized, i.e. less Americanized in a cultural sense. While life in one’s home country may have become more varied and interesting over time, the wider world has in many respects become smaller and less varied in terms of general cultural practices (and also, I would say, in terms of language and languages).

82 Comments »

  1. Oh, there will be more Provocations. Whether there will continue to be open comments on them, however, is another question. Dan T. and I are in the middle of discussing that right now.

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  2. Some other formats that you might want to consider
    1) debates between different points of view about the same subject(like the NY Times Room for Debate). Thus three authors could present short essays giving their perspective on the subject. It could be quite lively.
    2) book reviews. I love these.
    3) an ethicist column(as in the NY Times) where reader’s ethical dilemmas are discussed. It is sure to be interesting.
    4) Weekend reading. I don’t see why Massimo should get to monopolise all the best ideas 🙂

    The lovely thing about not being responsible is that I can make all these suggestions with no fear of the hard work entailed 🙂

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  3. I think discussing the economic problem Mark remarked in terms of any one group, or any members of a group, is misguided. The problem arose from inter-related policies based on presumption shared by both Republicans and Democrats, conservatives and liberals, wealthy and working class – presumptions largely fallacious and misguided, with long term consequences that everybody thought they could handle (although in different ways, given their different perspectives.)

    And the problem is multiple and layered, and not reducible to a single policy error or misstep or trend.

    These consequences of policies going back decades, are here now and will continue into the future. It’s not clear that there can be any one solution, and every effort at solution will come at cost, possibly quite high, in human suffering or national instability.

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  4. Hi Dan, those vids are hilarious. From my own experience (in Denmark and a few other nations) it doesn’t seem to be a lack of sex, but more along the lines of what Labnut said. Too much contraception. If they want people to have kids they have to get people to want a kid. BTW, this does not seem to a problem in all European nations.

    “You seem to be unable to separate the question of fault from that of what one needs to do in order to survive. It could be the case that it is not someone’s fault, but that nonetheless, he needs to tighten one’s belt, because … reality.”

    Not sure where you are seeing that. Yes, there are certainly cases where people need to tighten their belts in the immediate case because of reality. It is just that there are limits of what can be expected.

    You seem to be missing the point of the metaphor.

    “I am not re-litigating the other thread. I closed it for a reason.”

    Great, I’m not interested in that either.

    “…this summer, plenty of my capital will be flowing into the pockets of all the people who work in the hotel and restaurant businesses in Miami. That strikes me as being a good thing.”

    Absolutely! That’s what I said. This is also why I can’t say someone is actually “part of the problem” just because they happen to be in the top 1% of earners. There is so much that goes into it.

    There are however people who think that their lavish vacations and lifestyles make up for how much they are taking out. That is not always the case. They are part of the problem.

    It is they who will have to tighten their belts in the end of this Epoch being described. The idea that the majority of people are going to have to live even meaner lives, and get used to that as the new normal, so some people don’t lose the extra mansion where they store their second art collection… not realistic.

    “People who are in no financial position to live at a certain level are doing so by way of personal debt. It’s what led to the mortgage crisis, it’s what’s going to lead to the student loan crisis that’s coming — and which will be worse than the mortgage crisis”

    There were a portion of people on the debtor side of the mortgage crisis that tried to live beyond their means. No question. The idea that the majority of loan holders were such, or “led to” the totality that was that crisis does not jive with anything I have read or watched about it, except from conservative apologists for those up top. It was more complex and involves how loans were sold and handled.

    And the idea the student loan crisis is led by people trying to live beyond their means. Greed. Where to begin with that?

    Let’s see, you can just look to other nations that fund their students. No crisis. Or the US before we cut funding and replaced it almost entirely with a student loan system, where loans were made impossible to get out of (unlike any other loan), charged at higher rates of interest than business loans, and a market that demanded people have more advanced degrees. No crisis. Then we did that stupid thing. Crisis.

    The student loan issue, like the mortgage crisis, is manmade, based on a system put in place from those above to reap profits at the expense of people it should have been helping into better lives. In the end society (and the gov’t) would have been better off directly funding education.

    I hope it bursts, or threatens enough that the US comes to its senses.

    “Indeed, I routinely am in homes of people who make much less than we do, and yet who are driving much nicer cars, have multiple, enormous flat screen TVs, who are clearly financing their lifestyles on personal debt. ”

    Great, I’m not and have not. You really think that is how most students live? How most poor people in debt live?

    Yes, the people you cite are having personal issues. The idea that this is the cause of the 20 trillion US debt, or why austerity should be a gov’t policy to avoid default or inflation does not seem plausible.

    “We could afford to live at a much higher standard and have much more, but we choose primarily to save and periodically to splurge on things like 5 star vacations. But on the average, we live well below our means, and that’s on purpose.”

    That’s nice. I guess?

    Generally speaking (not talking about you) I am unimpressed when I hear millionaires talking about the frugal lives they lead, as if that has some relevance to what most people (especially the poor) have to deal with and as if they are some model for those below.

    I mean… Scrooge?

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  5. Dwayne, I’m so tired of arguing with you that I’m just not going to respond to this. I think you wildly misunderstand/misrepresent most of the points I’ve made. I’m happy to let readers make up their own minds.

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  6. Hi EJ, while somewhat true (and certainly true that it was no single anything) the idea we all equally had a hand in the result, we are all living beyond our means (which was the claim Mark made that I reacted to), or that we are equally capable of repairing the damage in the same equal way does not seem accurate.

    If we are talking about economics, it is easy enough to identify a “group” that reaped the benefits, those that didn’t, what policies helped direct that enrichment–while the problem Mark described arose–and where fixes are more or less likely to be found that will be less painful than others.

    Whether people choose to do so. That’s another question.

    It simply doesn’t have to be as dire as Mark made out. Though it certainly can be (and his bringing up the spectre of historical lessons was right). The 20 trillion debt? Manmade, fixable. It will only be painful (I mean real suffering) if we make it so.

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  7. Hi Dan,

    “I think you wildly misunderstand/misrepresent most of the points I’ve made.”

    There is some irony here. I thought the same from you.

    “I’m happy to let readers make up their own minds.”

    Sounds good.

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  8. I was working on replies to earlier comments – and I will come back to them – but I just want to reply now to this recent comment by dbholmes…

    “… while somewhat true (and certainly true that it was no single anything) the idea we all equally had a hand in the result, we are all living beyond our means (which was the claim Mark made that I reacted to), or that we are equally capable of repairing the damage in the same equal way does not seem accurate.”

    Firstly I did not claim that we all equally had a hand in this. In fact I was specifically attacking the policies of central banks and governments which have created bad incentives and rewarded poor corporate behavior.

    Secondly I did not say that we are all living beyond our means. I said that “we are living beyond our collective means.” Very different.

    Nor did I suggest that we are all equally capable of correcting the damage. The damage is done. I was just saying how I think it will play out.

    “If we are talking about economics, it is easy enough to identify a “group” that reaped the benefits, those that didn’t, what policies helped direct that enrichment – while the problem Mark described arose – and where fixes are more or less likely to be found that will be less painful than others… Whether people choose to do so. That’s another question… It simply doesn’t have to be as dire as Mark made out. Though it certainly can be (and his bringing up the spectre of historical lessons was right). The 20 trillion debt? Manmade, fixable. It will only be painful (I mean real suffering) if we make it so.”

    I totally disagree with you about the $20 trillion (and rising). It has *doubled* in the last eight or nine years! Sure, there will be better or worse ways to manage the crisis, but all classes of people will feel the effects. I just don’t buy (much of) what Blyth and many like him are saying.

    If all you were saying was, Let’s try to protect the most vulnerable, I would be with you entirely.

    Liked by 1 person

  9. Dwayne,
    I have now no interest in the content of your debate with Dan here.

    I only note that, given your criticism of my position on rhetoric, you have apparently not persuaded Dan to continue the discussion. So your understanding of rhetoric may be flawed.

    The economic issues Mark raises here requires considerable unpacking. But we’re not going to get there by pointing fingers. For instance the market for failed mortgages – a major contributing factor to the 2008 recession – was largely inflated by the decision of major banks to add on interest as value to these failed mortgages. These interests were just numbers attached to accounts. When foreign banks complained, demanding currency, the Bush administration printed 500 billion dollars to compensate them. This didn’t work, since it didn’t address the domestic market. The Obama administration did nothing spectacular to address this issue, instead simply passing finance bills that Bush had vetoed, hoping that the injection of money into the economy would itself slow the effects of the economy, long enough for the markets to right themselves, which, after some seven years, they largely did, without pronounced benefit to the working class.

    The point being: This story is not about political parties here, both of which believe the essential premises of global capitalism. It’s about our faith in financial institutions, which appears to be misplaced.

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  10. The Danish granny state videos are funny and weird. Denmark, however, has a total fertility rate (TFR) of 1.7, putting it in the low fertility rate category (TFR = 1.6–1.9), but not in the low low category (TFR = 1.5 and below).

    The low low TFRs are found not in northwest Europe but in southern Europe (Portugal to Greece) and eastern Europe (but not including Russia) and in the Confucian world (including Singapore, South Korea, Japan and Taiwan).

    https://en.wikipedia.org/wiki/List_of_sovereign_states_and_dependencies_by_total_fertility_rate

    Some countries have very high levels of government debt AND low low fertility. Japan, Greece, Portugal, Italy and Spain head the list.

    https://en.wikipedia.org/wiki/List_of_countries_by_public_debt

    Looking for modern countries with low debt and adequate TFRs, I conclude that New Zealand is the horse to back.

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  11. it should be noted that the kind of international economics Mark discusses certainly has street-level origins and consequences; but what these relationships are, are not clear. There is no one-to=one correlative here.

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  12. EJ said,
    I think discussing the economic problem Mark remarked in terms of any one group, or any members of a group, is misguided. …
    And the problem is multiple and layered, and not reducible to a single policy error or misstep or trend.

    Agreed. The problem is structural and not one of policy.

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  13. ” Bush administration printed 500 billion dollars” – I actually woke myself up worrying about whether this was 500 billion or 500 million. Google didn’t help, since the Bush administration tossed around hundreds of millions at all sorts of failings.

    I also ought to acknowledge that those who ‘bought’ houses on ‘”low cost” variable rate mortgages to begin with did themselves no service. And the financial institutions in which we ought not trust include those government related as well as private sector.

    What unraveled as I mentally gnawed at these issues is just how difficult to conceive some of these issues are, given the incredible numbers involved, and how what may be needed here is a complete re-thinking, not only of the nature of economics and political economy, but of the very nature of money.

    Economies have been feeding, and feeding on, our dreams for so long, we hardly remember that in dreams everything is possible; in reality, not so much.

    Liked by 1 person

  14. I find macroeconomics mysterious, but enjoy reading the heterodox (“neo-Chartalist” ie MMT) economist William Mitchell’s blog:

    “How would we know if the US government was spending too much overall in net terms (that is, relative to its tax revenue)? Answer: if there was full employment, full capacity utilisation and inflation was being driven by nominal aggregate demand growth outstripping the real capacity of the economy to respond by increasing output.”

    He is sanguine about the proportionally even larger Chinese debt given the state of their real economy.

    Here are two of his recent postings.
    On foreign ownership of US debt (in *US dollars*):
    http://bilbo.economicoutlook.net/blog/?p=35102
    On real levels of US unemployment:
    http://bilbo.economicoutlook.net/blog/?p=36183

    The Federal Reserve Bank (of St Louis) blog has a recent posting on US debt

    https://fredblog.stlouisfed.org/2017/02/two-tales-of-federal-debt/?utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=fredblog

    “There’s much disagreement on whether the federal government’s debt is too high. Here are two ways of looking at this perfectly understandable question…There’s been a marked increase in debt in response to the past recession, and it has leveled off at about 100% of annual GDP…Some consider that too high…The bottom graph multiplies the series above by the 10-year Treasury rate. This represents how much the debt costs, as a share of GDP. Here we see the cost is remarkably low – of course, thanks to low interest rates. Looking from this angle, some consider the debt to be too low..”

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  15. dbholmes (relating to your first comment)

    Thanks.

    “Some of the discussion reminded me of arguments made by Niall Ferguson, and I was interested if you were aware of him and if he influenced your thinking?”

    I read some of his work years ago and generally agreed with him; maybe he did influence me. I have not read anything of his recently, so don’t take this as a blanket endorsement.

    “I agree with the point made that economic downturns can end up resulting in social upheaval and loss of assumed freedoms as well as what many have considered achieved levels of progress (though to me that is largely cyclical rather than linear).”

    So I’m a linear thinker, am I? 🙂

    “In addition to those named above, I’ve mentioned in previous threads that I side with arguments by economist Mark Blyth, who takes the same line and has been directly explaining (and with a good track record) why we are seeing what we are seeing in the socio-political sphere, based on economic policies, their economic effects, and how populations react. From this angle I was not completely satisfied with your account of debt.”

    I had a listen to a few interviews Mark Blyth gave, and I have to say that I disagree with him on some issues. He seems to think *government* debt – so long as it is used for education or to fund a European-style welfare state is fine, no matter how large. I am not an economic ideologue and have an open mind about Keynesian-style deficit spending. But when I listen to Blyth I hear someone pushing a particular – and very familiar – ideological agenda which I personally reject. Much of it doesn’t make sense to me.

    He is right about some things. The bank bailouts and so on were bad. He associates them with what he calls neoliberalism. There is another neoliberalism, however, which has its roots in classical liberalism and which developed in Europe in the 1930s and after WW2. The current corrupt system of corporate welfare has zero relationship with classical liberalism and it is unfortunate that this corrupt system has come to be referred to as neoliberalism by many of its critics. My commitment is to a market system – and a welfare system – that works in a sustainable way.

    “I’m willing to concede that Gov’t debt is not inherently “precarious”… ”

    I don’t understand this; I am saying that the current levels of debt, government and private, are precarious, not that government debt is or isn’t “inherently” precarious.

    “… even if it is an undesirable situation and personal debt is “precarious” for those in the yoke and larger society if that house of cards falls (we just saw that in 2007-9)… The reason the economy has shifted to borrowing is manmade, but not – as you seem to be implying – by the mass of ordinary people living beyond their means, to which they feel unduly entitled.”

    This is not what I am saying. I am talking about incentives, and not just one class. Money printing or unproductive borrowing cannot create wealth in the longer term. And when excessive borrowing etc. (QE being part of the etc.) occurs, it has to be unwound somehow, sometime. Like the Fed’s 4 trillion dollar balance sheet, and similar situations in the eurozone and Japan.

    “Especially in the US, an economic trap has been created by those on the top, for those on the bottom. Earning has not matched increased production, and so left those at the bottom in a wholly artificial position of having to go into debt to obtain what was affordable before, should be now, and is available to others elsewhere.”

    I don’t understand this. First, whatever slight rise in productivity may have occurred in Western countries like the US in recent years, it has not been sufficient to justify the increased spending/consumption that has occurred.

    I’m trying to avoid blame-talk, except in respect to certain specified parties (see below). The notion that those at the top have deliberately created a trap for those at the bottom in the manner of a master plan doesn’t ring true to me.

    The so-called “deep state” is also divided, but there is some evidence of collusion between politicians in Washington, the banks (the Fed and the big investment banks), the military-industrial-security complex and the media. Certain elements seem to be doing everything they can to stir up trouble with Russia (and China and Iran …), perhaps so they can continue to exercise power and/or possibly benefit, directly or indirectly, from that huge military/espionage budget.

    “Could it not better be described that a very few are saving (and perhaps living) well beyond, and at the expense of, the rest of our collective means? Income and wealth inequality has hit the levels of the Gilded Age. It’s hard for me to view the problems you discuss as coming from the avariciousness of the working poor.”

    I said nothing about the supposed “avariciousness of the working poor.”

    “I’m not sure about this quote… “But the laws – if they are to be respected – must be seen as an expression of generalIy accepted societal norms rather than as an alien imposition.”… I disagree, at least in the US they should be based on individual rights and not simply norms. The former sometimes negate the latter. Though yes laws should not be felt like they are being handed down from some foreign entity. I guess I’d like to see that claim unpacked further to understand its implications.”

    Well, I have a rather different idea of rights from you. I recognize they are built into your legal system, but – speaking generally and not legalistically – I don’t see them as being inherent somehow in the individual but as the product of social interaction, the product of social norms. In fact, I see the individual as a social product.

    “Sorry if this seems highly critical. I liked the writing and how you made the arguments. It just seems there may be some areas of disagreement… unless I misread you?”

    There was some misreading (as I have tried to point out), but obviously we have real differences on the politico-philosophical and economic fronts. I think we agree on foreign policy questions.

    Liked by 1 person

  16. Parallax

    “”Central banks buying bonds with newly-created money, facilitating the purchase of these and other financial assets via the provision of cheap money to the big players…” In recessions before 2007-08 financial crisis the Federal reserve did the exact same thing. It is standard practice for fighting a recession.”

    But the scale was greater this time and some of the Fed’s actions were unprecedented (I think)… and it didn’t work as planned. What was supposed to be temporary has become a “new normal”.

    ““Price signals can no longer be trusted.”…Which prices are we talking about? The price of commodities and consumer goods which figure in inflation figures? Or are you referring to the price of U.S. debt?? I assume you are referring to the latter, but then I don’t see the distortion really. After the Federal Reserve ended the last of QE in October of 2014 the yield for 10-year treasuries fell until in January of 2015 we got to 1.68% per year which is simply incredibly low. To give everyone some perspective the same figure was 5.03% in June of 2007, 6.51% in June of 1997 and 8.38% in June of 1987. For most the Bush 43’s presidency the rate stood between 4 and 5%, during the Clinton years it hovered around 6%.”

    I’m thinking mainly of equities, some real estate and fixed interest. I’m saying that central bank and government policies (internationally coordinated) have inflated the prices of these assets.

    “Yes, the purpose of that example was to show the extent of the global appetite for U.S. debt. And that was back in the late 90s. Since then the demand has grown many orders of magnitude stronger (as seen by the yield figures above).”

    In the case of Treasury notes and bonds, I agree that there has been no alternative for many investors, central banks, etc.. This situation will not last forever.

    ““Political risks are not confined to the euro and RMB. And what about the IMF’s SDRs?” I am not sure what you mean, if I am not mistaken the SDR is not technically a currency. Moreover how is it backstopped? By member countries. The IMF has no fiscal capacity beyond that.”

    It is not technically a currency. As I understand it, it is unit which may be redeemed for any one of the small group of currencies (including now the yuan) upon which it is based – but it has been mooted as something that could play some of the roles the dollar currently plays, and also as a step along the way to a new global reserve currency.

    “The Russia-China alliance was born out of Moscow’s desperation in the aftermath of Crimea isolation. Moreover the U.S. shale oil, the rapidly falling price of solar energy and the fact that the U.S. economy is becoming less Carbon intensive all indicates a near future in which oil won’t be a global geopolitical factor (at least not for U.S.)… The new financial institutions promoted by China are not really a threat, for China to become a threat in these arenas you need it to be fully accessible and integrated in the global financial system and China isn’t and won’t do because doing so would greatly reduce the power of the Chinese state to control Chinese society.”

    China is not just a “threat” in these areas, it is already a major regional and international force. I have been following events for the last few years: the Chinese have a clear plan and they are implementing it very successfully so far. Much progress has been made already. And your characterization of their links to Russia (and other countries in the region) ignores the compelling logic and huge potential of such integration.

    Thanks for the links. I’ll have a listen.

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  17. Hi Mark and Parallax,
    China is not just a “threat” in these areas, it is already a major regional and international force.

    I think we need to clarify what we mean by China being a “threat“.

    First, we need to understand that they bear us no ill will, though they are deeply resentful of our support for the continuing independence of Taiwan. They are building their military only to be strong enough to shield Taiwan from foreign support and intervention.

    Second, they see us as being necessary to their prosperity. They need us as trading partners and they want strong, dependable trading partners. They need rapid growth to continue the industrialisation of their country. That rapid growth can only come from growing exports to countries in the West. It will later come from internal growth in consumer spending but their society is still in the early stages of that phase. That is because the bulk of their population are still peasants. Bottom line, we are critically necessary to continued Chinese prosperity. They will be responsible world citizens and so protect their best customers.

    So what then is the threat? The urbanisation of their vast rural population is an urgent imperative to avoid descent into chaos. And chaos is the Chinese national nightmare. The urbanisation of this population requires extensive industrialisation of the country which means they need more foreign customers to absorb the growing output of their factories. Their competition for customers will deprive Western countries of their export markets which is very bad news for Western workers. This is the first and largest threat. The second threat is related to the first. Their exports to Western countries effectively denude Western companies of their customers.

    The Chinese are on the horns of a dilemma. They desperately need us as a strong growing market for their exports. But if they are not careful they will plunge our economies into recession, which they are even more afraid of.

    It turns out we are both wobbling along in the same canoe and we have to learn to work together for our mutual benefit. The genius of the Chinese people is that they understand this better than we do. The US thinks it owns the canoe and can dictate terms. This is the terrible delusion that may yet capsize the canoe.

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  18. The industrialization of both China and India — and other substantial parts of the third world –is part of the reason why so much of the talk about global warming is just a lot of nonsense. They are not *not* going to industrialize, no matter how many agreements we sign, and their industrialization will largely make most of the sorts of efforts being talked about largely pointless.

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  19. Dan-K
    They are not *not* going to industrialize, no matter how many agreements we sign, and their industrialization will largely make most of the sorts of efforts being talked about largely pointless.

    Yes. As usual you have put your finger on the heart of the problem. But they also understand the problem and are preparing for it in their own way by developing a vast export industry of solar panels and wind turbines. By driving down costs through exports they hope to mitigate the conversion of their own industry to green technology.

    But even so, the mere fact of industrialisation and the accompanying urbanisation means a large growth in heat output per person.

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  20. I don’t think I would have liked to live during La Belle Epoque.

    I had 12 great uncles and great aunts born during that period. Most of them died in infancy.

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  21. The point is that it was nothing out of the ordinary, most families of the time had a similar story. I happen to know it because I saw the family tree, not because anyone mentioned the fact. The time might have been “belle” in some respects, but it is not a time to be preferred to our own.

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  22. Why don’t you speak for the things *you* like and leave the things that *other* people like to them?

    I mean, it’s a pretty dumb thing to argue with people about isn’t it? What exactly is the point of coming over here just to crap on some remark I made about La Belle Epoque, 70 plus comments ago?

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  23. Just re-reading the Durant’s “Age of Voltaire” again. Prelude to “the best of times, the worst of times,” as Dickens had it. Collapsing morals, over-population in the urban centers, decaying aristocracy, short life span for the poor living in squalor, wretched working conditions in the new factories, and, related to the economics problem Mark discusses, the first stock market, followed swiftly by unregulated investments and debt, followed swiftly by the first stock market crash initiating the first real depression. Terrible times, terrible.

    Except that one could actually have sat down to dinner with Hume and Voltaire at the same time! Think of it! And the wild ideas about science, and political reform, and epistemology, and mathematics! A conversation with Samuel Johnson! Fielding fresh off the press! The comic caricatures of Hogarth, the heady fantasias of Baroque!

    There are about a dozen eras in history I would prefer to this one. At least then, the future was unknown, and thus exciting. But the trends of today are all too obvious, and there is nothing exciting – or even interesting – about much of the future they promise.

    Maybe I’m just getting old.

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  24. Hi Mark, apologies for the late reply, the real world intervened.

    I really appreciate both your comments, they clear up areas where I wasn’t sure what you meant.

    Since it is so late, I am not going to get into any debating on differences. Just make some clarifications…

    “Well, I have a rather different idea of rights from you. I recognize they are built into your legal system, but – speaking generally and not legalistically – I don’t see them as being inherent somehow in the individual but as the product of social interaction, the product of social norms.”

    Actually we are not far off on that. I was not clear what you meant, and was disagreeing with the idea laws should be based on moral concepts (example killing is wrong) rather than rights (killing is illegal because it violates certain rights). The point being there are plenty of what are considered moral wrongs that cannot be captured in law without violating rights and so are blocked fro being laws.

    “…obviously we have real differences on the politico-philosophical and economic fronts. I think we agree on foreign policy questions.”

    Yes, this seems right. But it’s interesting to me.

    You do seem to be a libertarian. You even use language and references that I am familiar with from my old libertarian days (and my continuing to follow it for information). You said you differ in seeing some use for gov’t and regulations, and that would mean we are mainly separated by degree of difference from a libertarian base.

    After experiencing the failure of market-based policies, and seeing the success of some social programs in other nations I left libertarian policies for pragmatism. Though I am highly sympathetic, and within the context of having a sufficient safety-net, drive for minimal gov’t and maximum freedom.

    I think you may be a bit too hard on Blyth. He does not strike me as an idealogue, but a pragmatist. I have not heard him suggesting that gov’t programs are the best no matter how large. He likes markets and supports them. But yes, he is pro-Keynesian with respect to the social safety net. Being a product of them, a success story, that might make sense.

    We do differ on our assessment of the US economy, and potential solutions, though I am not sure if that has so much to do with ideology. Yes, it doubled in so many years. I think the explanation why favors my interpretation of why it is not as big a problem as you suggest. But we can leave it there.

    “The current corrupt system of corporate welfare has zero relationship with classical liberalism and it is unfortunate that this corrupt system has come to be referred to as neoliberalism by many of its critics. My commitment is to a market system – and a welfare system – that works in a sustainable way.”

    We are in agreement on all this, though we may depart on some details of the optimal market/safety net split.

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  25. Hi Mark (forgot something)…

    “The notion that those at the top have deliberately created a trap for those at the bottom in the manner of a master plan doesn’t ring true to me.”

    I never said that. A trap (like many other things) may be created without intent or deliberation, much less collaboration.

    For example, I am pretty certain that the banks involved did not intend to crash the economy, much less plan for it, but the result of their collective self-serving actions (more than anything else) did. Or to use a less direct analogy, the concerted effort of beavers can end up flooding a valley and taking down a lot of other critters, though they had no intention of doing so.

    If you have the time, I am curious what your opinion is of austerity policy. The essay read to me (though you have pointed out I was mistaken) as supporting calls for such policies, and your criticism of Blyth (being ideological for arguing anti-austerity) seems to suggest the same. So I’m left curious.

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  26. Hi EJ,

    “I only note that, given your criticism of my position on rhetoric, you have apparently not persuaded Dan to continue the discussion. So your understanding of rhetoric may be flawed.”

    But it was not my discussion, and I was equally disinterested in continuing it.

    Remember, this started when a quote I cited to someone else was called a stupid and potentially dangerous thing to say.

    The problem was the quote was a metaphorical response to calls by certain officials for austerity policy. Hence I was bewildered how it could be stupid to say, much less dangerous to anyone. Metaphors are usually just apt or not apt. Of course, one can pull a saying out of the context of the metaphor and find where it would be a stupid and potentially dangerous thing to say by actual people, in specific situations, but that seems to be an epic fail in both logic and rhetoric.

    For example, I could capture a position on business policy regarding airlines, using a metaphorical exchange between a pilot and an air traffic control operator. That someone could show that an actual pilot saying that to an actual operator, in a specific real world situation, would be dangerous to the pilot (and passengers), would be to entirely miss what a metaphor is and how it can be analyzed.

    “The point being: This story is not about political parties here, both of which believe the essential premises of global capitalism. It’s about our faith in financial institutions, which appears to be misplaced.”

    You’ll be glad to know I basically agree with this.

    I probably didn’t help myself with connecting the terms conservative and Rep, but I would point out I did mention that there are Dems acting in the same fashion. I guess I would be happier to lose the political and party labels in discussing this, however we have gone through a number of threads blaming liberals and Dems, so it seems odd that this suddenly becomes an issue when I turn the focus to conservatives and Reps. *Now* we can’t blame certain groups? OK.

    What I am arguing is that, as complicated as these things are, one can get to specific policies and who they helped and who they did not help, which led (more than others) to the current situation. And, more importantly, it is also possible to identify where the best sources of solutions to the current problem are (or are capable of coming from). Since the problem under discussion is financial, and there is a rather large disparity in wealth based on class (or is that class based on wealth), it is possible to talk in these terms. It is not meaningless.

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  27. dbholmes

    “You do seem to be a libertarian. You even use language and references that I am familiar with from my old libertarian days… You said you differ in seeing some use for gov’t and regulations, and that would mean we are mainly separated by degree of difference from a libertarian base.”

    I find that most actual libertarians have a commitment to metaphysical notions which I don’t share (innate rights, etc.). My libertarian tendencies battle (equal and opposite?) authoritarian tendencies. 🙂

    “After experiencing the failure of market-based policies, and seeing the success of some social programs in other nations I left libertarian policies for pragmatism.”

    Whatever works, sure. And, clearly, market-based approaches don’t work in all policy areas. I’d have to know precisely which (successful) social programs you are talking about. But if such programs achieve success by undermining national finances or future prosperity then I don’t count that as success.

    “I think you may be a bit too hard on Blyth. He does not strike me as an idealogue, but a pragmatist. I have not heard him suggesting that gov’t programs are the best no matter how large. He likes markets and supports them. But yes, he is pro-Keynesian with respect to the social safety net. Being a product of them, a success story, that might make sense.”

    On that last point, it has long been recognized that it is a good thing both for individuals and societies to ensure (in the past mainly through scholarships) that bright children from poor backgrounds have access to an appropriate education. The link here with socialism or social democracy is very tenuous. And I can’t talk authoritatively about Blyth, but my sense is that what he is saying is very much ideologically driven (and misleading).

    “We do differ on our assessment of the US economy, and potential solutions, though I am not sure if that has so much to do with ideology. Yes, it doubled in so many years. I think the explanation why favors my interpretation of why it is not as big a problem as you suggest.”

    We’ll see. But my strong view – based on history and my own understanding of the basics of economics and finance – is that the situation is well past the point of no return. Maybe if the US changed course entirely and negotiated with Russia and China and drastically reduced their military budget, something could be done. But this is *highly* unlikely.

    “If you have the time, I am curious what your opinion is of austerity policy.”

    The term is a polemical one, is it not? It is often used as such anyway. I am a fiscal conservative. Deficit spending is probably a good thing when used carefully, but you just can’t keep doing it indefinitely. People are losing faith in most currencies as long-term stores of value. The whole system is at risk and much of the wealth that people think they have could easily just evaporate, because so much of it has been generated not by productive activity but by moneyprinting etc..

    No one can predict what will happen, but I am guessing that there will be another crisis somewhat like 2008, only worse (because governments and central banks had more fire-power then). Listen to the hawkish noises coming from the Fed. They seem almost desperate to raise rates and start to reduce their balance sheet. They know they would be in a very weak position if a crisis struck now. My view is that they should have normalized long ago but that it was delayed, probably for political reasons.

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  28. Hi Mark, thanks again. It sounds like we are not that far apart on our basic position, though where we differ may have large outcomes on domestic/fiscal policy and perhaps civil rights issues.

    “I find that most actual libertarians have a commitment to metaphysical notions which I don’t share (innate rights, etc.). My libertarian tendencies battle (equal and opposite?) authoritarian tendencies.”

    That would be an excellent description of my own position.

    I was not enthused with the metaphysical and/or (what I considered) naive ideological beliefs among libertarians in the US. However, I thought many of their politico-economic policies made sense on a more mundane, common sense level, and promoted what I like (individual autonomy/liberty) over what I dislike (authoritarianism).

    My critique, and so why I would not consider myself one now, is based on what I view as flaws in their economic policies. While on the surface it rewards individualism, it requires several assumptions to work in reality, and fails to account for organization of economic power (for example corporations and conglomerates) that can be just as strong and authoritarian as organized political power (states). This is in addition to a problem you point out…

    “And, clearly, market-based approaches don’t work in all policy areas. I’d have to know precisely which (successful) social programs you are talking about. But if such programs achieve success by undermining national finances or future prosperity then I don’t count that as success.”

    Yes, and this is where we may differ… specific policies. Where and how do markets work or fail. I won’t go through a list, as we can leave that for future essays which might touch on them. However, I will state up front the two that were clinchers for me to shift away from the libertarian camp were health care, and unemployment. Education is also important, but more complex.

    “The link here with socialism or social democracy is very tenuous. And I can’t talk authoritatively about Blyth, but my sense is that what he is saying is very much ideologically driven (and misleading).”

    In the US my current position would likely be considered socialist or social democrat. I have no problem with people calling me that, though I think it comes with baggage that doesn’t really reflect my thinking.

    I’m not sure I’d call myself an authority on Blyth either, but I have gotten quite the opposite impression of him. Then again, it sounds like you have much more extensive knowledge of economics than I do (which would not be hard). Perhaps he says things that indicate a position that I would not catch as an outsider, or uses data (or analyses) you understand as being flawed.

    From science, I am quite familiar with how convincing something might be when it is not one’s own field, then later when you get into it and think… oh this uses a bunch of assumptions (or has an agenda) which may be wrong.

    If you have recommended authors, books, or vids (as a counterpoint, even if not directly against Blyth) I would be interested.

    “We’ll see. But my strong view – based on history and my own understanding of the basics of economics and finance – is that the situation is well past the point of no return. Maybe if the US changed course entirely and negotiated with Russia and China and drastically reduced their military budget, something could be done. But this is *highly* unlikely.”

    Maybe we should make a bet. 🙂

    Let me be clear… I definitely think the situation is not a good thing. And the longer it goes on this way the more damage it will inflict. We definitely need to change course in some way to limit the damage. And I might agree with you that (given the state of US politics) that is unlikely and so will probably end up doing a lot of damage.

    My only difference with your position is whether the current situation is past a point of no return regardless of fixes, and how much damage (as in real suffering or loss of lifestyle–which seemed to be the point of your essay) would be *required* by the majority of US citizens.

    My fear is that things will not be fixed, or when fixes are put in place they will cause needless amounts of suffering to most of the population, who will have been convinced this is a necessary sacrifice they must make (but in fact, only made to avoid fractional suffering of a few).

    My hope is that changes will be made, and preferably by people that can limit damage to the sectors that can absorb them best, with little human suffering or loss of lifestyle. Clearly cutting back on our extravagant military budget is in line with this.

    “The term is a polemical one, is it not? It is often used as such anyway. I am a fiscal conservative. Deficit spending is probably a good thing when used carefully, but you just can’t keep doing it indefinitely.”

    Yeah, austerity is polemical. Then again, those pushing such policies have their own terms and concepts to frame the debate toward their goals.

    To me fiscal conservative, and limiting deficit spending, is not inherently pro “austerity”. It depends on how things get hit. Why and when cuts are made, and where damage is directed.

    I agree deficits should not be run indefinitely, or immensely. I am a bit less accepting of its use (in magnitude and time) as a standard policy tool than Blyth is, though it would seem much more so than you are.

    Anyway, I look forward to any pieces you may do on this topic. Even where we may not agree, it will undoubtedly be an educational experience for me.

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