Stiglitz on Bush’s economic legacy
Good article by Stiglitz about the economic legacy of Bush. Stiglitz was Chief Economist at the World Bank and chaired Clinton’s Council of Economic Advisors. Stiglitz went on to be highly critical of the World Bank and especially the IMF for destroying the economies of developing countries.
He infuriates the neoclassical economists with his theory of imperfect information - which says that market players invariably have imperfect information which means that their collective decisions almost always produce less than ideal outcomes -market failure is the norm not the exception. Hence there is very wide scope for govt intervention to produce better outcomes.
Anyway his article about Bush is worth a read.
When we look back someday at the catastrophe that was the Bush administration, we will think of many things: the tragedy of the Iraq war, the shame of Guantánamo and Abu Ghraib, the erosion of civil liberties. The damage done to the American economy does not make front-page headlines every day, but the repercussions will be felt beyond the lifetime of anyone reading this page.
I can hear an irritated counterthrust already. The president has not driven the United States into a recession during his almost seven years in office. Unemployment stands at a respectable 4.6 percent. Well, fine. But the other side of the ledger groans with distress: a tax code that has become hideously biased in favor of the rich; a national debt that will probably have grown 70 percent by the time this president leaves Washington; a swelling cascade of mortgage defaults; a record near-$850 billion trade deficit; oil prices that are higher than they have ever been; and a dollar so weak that for an American to buy a cup of coffee in London or Paris—or even the Yukon—becomes a venture in high finance.
Bush blew the massive deficit he inherited from Clinton on tax cuts for the rich, corporate welfare and the war (US$2trillion). The inequality of the tax cuts is staggering:
Together these tax cuts, when fully implemented and if made permanent, mean that in 2012 the average reduction for an American in the bottom 20 percent will be a scant $45, while those with incomes of more than $1 million will see their tax bills reduced by an average of $162,000.
Then the Federal Reserve cut rates to below inflation (-2% in real terms) to stimulate the economy and Americans responded by going on a debt fuelled bender. The results of which we’re seeing in the mortgage credit collapse - 1.7m Americans expected to lose their homes in the months ahead - which will no doubt add more to the extra 5.3m Americans living in poverty than when Bush started.
And while Bush increased the US dependence on oil, the Iraq war was part of the reason for the rise in oil prices. Not a clever strategy.
Which is interesting because we have our own burgeoning overseas debt and current account deficit problems. And the housing market is a key part of the problem. Of course a key difference is that the NZ govt has run a surplus not a massive deficit like rip-and-burn Bush. But we too have increased rather than decreased our oil dependence over the course of this govt. Be interesting to see how Key intends to burn the surplus if he wins next year.
December 29th, 2007 at 12:02 am
So Cullen and the Governor of the Reserve Bank have done the exact opposite of their American counterparts yet still managed to produce exactly the same result. Americans and Kiwis “responded by going on a debt fuelled bender”, mainly on houses and household appliances. That does suggest people were responding to something other than monetary policy.
Stiglitz identifies imperfect information as a major weakness of the free market. That’s true enough. What isn’t explained is how govt intervention could possibly produce better outcomes. Omniscience is the preserve of God. Govt information is just as imperfect as the free market’s. Logically it follows that govt’s collective decisions will almost always produce less than ideal outcomes too.
Ergo, there is very narrow scope for govt intervention to produce better outcomes. As has been repeatedly proven. Free market decision making does have one huge advantage over government decision making. Free market decisions are, in the main, made by disparate players whereas govt decisions are made by a clique of planners or, worse still, willfully ill informed politicians.
December 29th, 2007 at 12:54 am
Actually there are striking similarities to the US and the NZ situation.
Both countries have policies that provide Tax Incentives for people who buy houses. Both countries have allowed large amounts of money to become available to borrowers (though the mechanisms are different). Both countries have penalized their middle class. Both countries deregulated aspects of their financial systems and both have had serious losses in the financial sector as a result. Here it is expressed in bankrupt investment groups. There it is a more complex dance and it isn’t clear who will actually wind up holding the bag.
The differences are important though, and in the long term it should be expected that the US $ will sink further and further while the NZ economy has some scope for government to mitigate the coming recession.
It isn’t just the interest rate…the US SHOULD have raised the rate much earlier and allowed the recession it has to have actually happen. Instead money is cheap in Japan and the US as the Central Banks try to push-on-a-string to unwilling borrowers.
It has a ways to go before the bottom hits. NZ could take a 20% haircut in housing and survive quite nicely IMHO… and that’s as far as it goes. The US will finally shed twice that much to bring housing to affordable levels.
respectfully
BJ
December 29th, 2007 at 1:32 am
BJ,
I’m not sure if you were responding to me or Russell but those are the sort of factors outside of direct monetary policy that I was thinking of. You’re a bit better informed in this area than me.
I concur with your analysis and conclusions but… every cloud has it’s silver lining. There’s nothing like a recession to curb profligate energy consumption
, except maybe a full blown depression of course.
December 29th, 2007 at 12:27 pm
What a bunch of revisionist, hypocritical BS.
Too bad the rhetoric from this Kenysian Statist bears not even superficial resemblance to the facts.
a) economic growth.
Sure it had nothing to do with the fact that US enterprises no longer had to face competition from the Japanese due to the fact that their bubble economy was in meltdown which continued for a decade and a half after the property bubble burst in the early 1990s.
It had nothing to do with the fact that through Clinton’s signing of various bilateral and multilateral “Free Trade Agreements” (NAFTA and GATT), the United States virtually colonised the economies of the Third World and offshored a large portion of their manufacturing capacity to China and other Third World countries thus costing up to a million high skill and high paid blue collar jobs and the replacement with fewer low skill, low paid McJobs.
It has nothing to do with the fact that the fact that his toppling of Slobodan MiloÅ¡ević after the Balkans wars gave US and European corporations the carte blanche to divide the economies of former Yugslavian countries through the “Stability Pact for South Eastern Europe” amoung themselves.
It has nothing to do with the fact that the Harvard Institute for International Development conveniently “botched” the privitisation of Russia’s economy in the early 1990s effectively destroying it and thus eliminating a major international trade rival.
How you “progressives” can paint Bill Clinton as some kind of “working class” hero is beyond me. George Bush has merely carried the policies that Bill Clinton started to their logical conclusion. Including his generous provision of Corporate Welfare, whilst slashing welfare for the country’s most disadvantaged.
Not to mention as the Enron, Worldcom etc scandals and the tech bubble bursting in 2001 demonstrated quite a large proportion of that economic “growth” that he oversaw was illusionary. Sure some won, and big too, but just as many lost to the same degree.
December 29th, 2007 at 1:54 pm
Oh yeah.
I forgot to mention that period that Clinton presided over benefited from artificially low energy prices as a result of the post Oil Crisis flood of oil which resulted from an alliance between the US, Europe and Saudi Arabia designed to cripple the Soviet Union’s terms of trade, which it did rather successfully if I might add.
December 30th, 2007 at 3:12 pm
- “He infuriates the neoclassical economists with his theory of imperfect information - which says that market players invariably have imperfect information which means that their collective decisions almost always produce less than ideal outcomes”
I don’t think anyone, anywhere in the whole history of the world has ever claimed that the participants in any market have perfect information; so it seems somewhat unlikely that anyone is going to be “infuriated” as you suggest.
In fact, a central point of free markets is precisely that nobody can possibly *have* perfect information, for the very simple reason that it does not *exist* prior to the market’s operation. This is why a market is called a price discovery mechanism; because prices are not set, they emerge. As Hayek observed, freely-determined prices convey information.
In a centrally planned economy this information is entirely missing. Hell, even Khrushchev knew this; hence the famous quotation that he intended to take over the whole world except for New Zealand, which he would leave as a free market to determine prices.
How is it that an unreformed Communist dictator from fifty years ago had a better understanding of the operation and benefit of free markets than you seem to? And on the basis of your “understanding” you propose - surprise, surprise - yet more intervention and control from state commissars into our lives.
- “-market failure is the norm not the exception. ”
I don’t think you understand what the term “market failure” actually means. The prices that emerge from free markets are axiomatically the “correct” ones. They literally cannot be “improved” upon by any central planner, only distorted. The result is enormous efficiency and value for consumers, which can be contrasted with the astonishing waste which was the economic hallmark of Communism (and which is also the hallmark of all government spending).
- ” Hence there is very wide scope for govt intervention to produce better outcomes.”
Because politically appointed central planners ,spending other people’s money, magically possess the perfect information which eludes everyone else, right? They know just how much of every item each of us wants to buy and how much we are willing to pay before switching to alternatives or foregoing a particular consumption altogether, and the thousand and one trade-offs and puchasing decisions that each of us makes in our daily lives and which are automatically captured in free-market prices? And such gifted people as these central planners of yours, with their god-like knowledge, choose not to make millions using their incredible talents working for themselves, but instead elect to work in a government cubicle for an average wage. Remarkable.
- “a tax code that has become hideously biased in favor of the rich”
In 2005, the richest 10% in the US paid some 70% of the tax take. Just how on earth can anyone conclude that this constitutes a system “hideously biased in favor of the rich” is a complete mystery. In fact, such a claim tells us rather more about the person making the claim.
- “The inequality of the tax cuts is staggering: ‘Together these tax cuts, when fully implemented and if made permanent, mean that in 2012 the average reduction for an American in the bottom 20 percent will be a scant $45, while those with incomes of more than $1 million will see their tax bills reduced by an average of $162,000.’”
The only thing “staggering” about this paragraph is that you do not seem to understand that, since the tax regime soaks the rich so heavily, *any* tax cut is inevitably going to affect them more than the other 90% who pay only a token amount. This is right and proper.
But of course, as has repeatedly been shown, tax cuts for the “wealthy” actually tend to result in them paying far *more* tax than they were under the old regime, because economic activity is boosted and there is less of an incentive for them to pay accountants to protect their earnings to such a degree.
- “Which is interesting because we have our own burgeoning overseas debt and current account deficit problems. And the housing market is a key part of the problem. ”
I’d ask you to explain and justify any of that nonsense, but I know I’d be wasting my time.
- “Be interesting to see how Key intends to burn the surplus if he wins next year.”
You mean the over-tax that this government has extorted from the workers? Well, perhaps Key will “burn” it by letting said workers keep more of their own earnings, rather than being forced to hand it over to the state parasite that lives on their backs? Just a thought.
Ironically, the overwhelming reason for condeming Bush over the economy is because of the vast unfunded long-term liabilities which he has committed the state to; vast welfare promises of the sort that you lefties love. The current state deficit, the Iraq war or the state of the dollar are *as nothing* compared to these commitments.
The same will happen in NZ sooner or later since, like all unchecked democracies, one group can simply vote to plunder another (the path to power for so many politicians).
December 31st, 2007 at 9:28 am
Interesting one:
“Continents of garbage in the oceans are killing marine life and releasing poisons that enter the human food chain, Amanda Woods
reports.”
tinyurl.com/2nv36s
“In 2001 CSIRO researchers were involved in the development of a corn-based bioplastic that would provide the foundation for the company Plantic Technologies, which developed biodegradable plastic for everything from food and beverage packaging to medical, agricultural and sporting applications.
The chief executive of Plantic, Grant Dow, says once composted, the plastic would become nothing more than carbon dioxide and water.”
December 31st, 2007 at 10:05 am
“you do not seem to understand that, since the tax regime soaks the rich so heavily, *any* tax cut is inevitably going to affect them more than the other 90% who pay only a token amount. This is right and proper.”
There’s the flaw in your entire outlook: you believe the rich to be “soaked” in tax based on the real dollar amounts they pay, rather than the percentage of income. While the poor pay “a token amount” in real dollars! It’s a rather astonishing out look - consider the very definition of ‘poverty’: spending the greatest percentage of their income on basic needs: rent, power, food, school supplies, doctors visits, leaving the thinnist or no amount for discretionary spending.
Wealthier individuals have the situation reversed. Simply put - the rich pay tax from their discretionary wealth, the poor from the money enabling them survive. Is that “right and proper”? I know many wealthier Americans who disagree with your morals.
December 31st, 2007 at 6:15 pm
BP
Trying to relate that to this thread. It isn’t, is it? Don’t mind, but not certain of the point you are aiming for here. The garbage in the oceans is real enough and I think that none of us want it there…
respectfully
BJ
December 31st, 2007 at 7:09 pm
BJ,
I think I can see another way BP’s comment is related to Bush. Bush’s subsidies on corn for biofuels may be ruining the economics of bioplastics even with high prices for petro-plastics. BP may have identified yet another environmental downside to biofuels.
December 31st, 2007 at 8:04 pm
Off Topic
I just want to wish all frogs a happy new year and PLEASE do not drink and drive.
December 31st, 2007 at 8:34 pm
Mouldwarp says:
“The result is enormous efficiency and value for consumers, which can be contrasted with the astonishing waste which was the economic hallmark of Communism (and which is also the hallmark of all government spending).”
The House Price Crash of 2010
My most recent property development in Christchurch was an 18 lot high quality, hillside sub-division pitched entirely at this market. With no schools nearby and a need to have two cars per household, in every case bar none these empty nesters built five bedroom, two and a half bathroom homes with treble garages. That means there are 90 bedrooms, 45 bathrooms and 54 garages for 18 couples. Think about that - there are 18 bedrooms occupied yet 90 bedrooms built!
And there are tens of thousands of this type of home now being built up and down the country. Real estate statistics now show that 2005 was the peak of the recent property price boom and that it has plateaued since. This is exactly in alignment with the last of the ‘boomers buying into this phase of their housing needs……………../ /
Sooner or later someone will have to sell and this will be the crack in the dam, the thin edge of the wedge. More and more ‘boomers will need to quit their properties as they need to substantially down size or move into retirement homes and there simply is not the volume in the market to buy these poorly located behemoths at the prices expected by the vendors.
http://www.babyboomersguide.co.nz/Articles/Will+there+be+a+crash+in+20 10/The+House+Price+Crash+of+2010.html
December 31st, 2007 at 10:29 pm
“Don’t even Putt” - Dean Martin?
BJ
December 31st, 2007 at 11:19 pm
Mouldwarp
This is the picure that the bottom 99% of Americans sees.
http://www.washingtonmonthly.com/archives/individual/2007_12/012733.ph p
Any benefit to the world, to the USA or to the folks in the top 1% is purely illusion, as no individual can consume that much that fast. Can’t… not even if they wanted to do so.
That sort of inequality isn’t solely the result of taxation, but problems with US Tax Law and the rise of corporatism in place of capitalism has made even the use of taxes to “level” the playing field or at least make it less of a sheer rock face, anathema to the party of wealth.
http://talkingpointsmemo.com/archives/061139.php
To make a different point however… I would not regard the failures of the housing market as indicative of a “market” failure. Those are largely an issue of misguided government intervention in the first place. The failure of the MORTGAGE market in the USA however, is almost a pure deregulated greed in action event. The market EVENTUALLY will correct… and at this point the Fed isn’t helping it. The recession is necessary to flush out all the malinvestment… but how does that happen anyhow? What about the dot-com bubble? Some of us knew for certain it would end badly… others tossed billions of dollars at enterprises that had less chance than a satanic snowball…. no regulation fueled that puppy.
Efficiency? The market sucks. The alternatives also suck. The point of departure here is how the market vs a directed economy respond to a CHANGE in conditions. I maintain that the directed economy stands a better chance of pre-positioning itself, but examples of either escape me at this hour….
Happy New Year…
respectfully
BJ
January 1st, 2008 at 12:19 am
BJ,
The market seems to work quite efficiently when people or companies are buying goods and services from each other. The markets on the other hand trade bits of paper to people who believe in free lunches. The original point of the share market was to share the financial risks of ventures the banks were too conservative to finance. As long as those bits of paper are priced to return a reasonable preium for the risk involved everything goes well. But as with all forms of gambling there are only a few people who can remain rational and calculating when the adrenalin kicks in. IMHO the booms and busts of the stock markets are the collective highs and lows of adrenalin junkies. No wonder the markets give the market a bad name.
January 1st, 2008 at 9:12 am
Loopholes of the Rich : How the Rich Legally Make More Money and Pay Less Tax
Most of the rich Americans save a lot of money by paying less tax as they are able to cleverly use the tax loopholes. The same tactics are discussed in this book by Diane Kennedy. The book has simplified all the complex tax terms and gives real life examples of people who saved taxes by using the same strategies.
http://www.suggestica.com/suggestion/view_suggestion?expert_id=13&page =1
[Greed Knows No Bounds… We Find the Depressed, The Troubled Families, The Desperate…. and trim their wealth]>>
52 Homes in 52 Weeks
A real estate guide unlike any other, this book is the true story of a seemingly impossible investing challenge and two investors who pulled it off – all to prove that you can do it too.
Real Estate Riches
Also, learn how the tax man can subsidize your real estate investment. Most importantly, this book will reveal how you can create passive income using your banker’s money
http://www.dolfderoos.com/books/
NZ For Sale
Te Anau
http://www.propertyventures.co.nz/web-content/Our_Projects/Heritage_Es tate.html
Queenstown
http://www.propertyventures.co.nz/web-content/Our_Projects/Five_Mile.h tml
St Anaud
http://www.propertyventures.co.nz/web-content/Our_Projects/St_Arnaud.h tml
Oi oi!
Who funds these people?:
http://www.national.org.nz/
http://www.act.org.nz/
Why?
January 1st, 2008 at 3:16 pm
Is it true?
kiwiblog.co.nz/2008/01/whaor_says_nandor_to_resign.html
January 1st, 2008 at 5:29 pm
Mouldwarp,
As time goes by I’m becoming more sympathetic to your point of view, although we differ in that you appear no to recognise that the economic system we have at the moment doesnt’ even superficially resemble a true free market that classical economists and philosphers like Adam Smith, David Ricardo, John Locke, and John Stuart Mill envisioned, which naturally determines relative differences in income. How could it not?
You appear to conflate the ideal free market system with what we have now. The resemblance between 19th Century mercantilism and the current Capitalist system is striking save the value of money is determined by the relative cost of oil rather than gold with very similar consequences.
To illustrate my point heres a quote from one of the US’ premier crony capitalists.
The competitor is our friend and the customer is our enemy…There isn’t one grain of anything in the world that is sold in a free market. Not one! The only place you see a free market is in the speeches of politicians. People who are not from the Midwest do not understand that this is a socialist country.
Dwayne Andreas, then-Chairman, Archer Daniels Midland (slogan: ‘Supermarket to the World’), in a 1995 interview.
Kevyn
Your point is as relevant to the commodities markets as well as the share/stock markets.
“What about the dot-com bubble? Some of us knew for certain it would end badly… others tossed billions of dollars at enterprises that had less chance than a satanic snowball…. no regulation fueled that puppy.”
Actually government intervention DID facilitate the dot com bubble albeit indirectly. My opinion is that patent law overvalues new technology as it puts up artificial barriers to competition and combined with peverse tax laws that encourage and faciliate mergers, acquisitions (tax deduction on corporate debt and exemption from capital gains of securities transactions involved in corporate mergers), and rewards the development and adoption of new technology (accelerated depreciation, subsidies for R&D), those government interventions fuelled over expectation for returns in the tech sector, which was only too happily enabled by Alan Greenspan.
http://www.mutualist.org/id4.html
http://tinyurl.com/2k3gum
http://www.wipo.int/sme/en/documents/patent_information.htm
January 1st, 2008 at 5:32 pm
Nandor are you there, do come out to play ?
January 1st, 2008 at 6:17 pm
Guys — it’s a good question but most of the regulars are on Holiday and Nandor only ever shows up here once a quarter or so as the mood hits.
I think we’re all going to have to wait on this answer. Me too.
I have to hope he is not going…
respectfully
BJ
January 1st, 2008 at 6:37 pm
It’s interesting to see the bashing of the “rich”, but rich in this country is (in practice) defined as a single income earner for a family, earning over 60K pa and therefore paying the top rate.
NZ Labour have had 8 years to sort out a fairer tax system and have failed miserably. If anything, they are heading the way of the US of A; a tax code so unwieldy and complex it is no wonder the thing has so many loopholes.
We’ve seen how this government likes to rush poorly worded legislation through creating more uncertainty and leaving loopholes; whilst driving the costs of compliance up higher and higher, not to mention huge amounts of wasted money as the IRD struggle to put in new systems to cope with changes to the student loan scheme (for example) and the Charities Commission spending 1.8 million on a new system to track Charities, only to have to discard it because the act passed in a different form than they anticipated (as another example).
The next election is going to see NZ Labour make a last ditch effort to gain votes using the recent tax collection surpluses. I only hope they try to bribe voters with something that is robust and sound, rather than simply an ill conceived, loophole ridden grasp for votes.
January 1st, 2008 at 7:09 pm
Can you please up load my post please frog?
January 1st, 2008 at 7:40 pm
So Russel, when the Govt becomes “market player” doesnt that mean they have imperfect information as well?
I do agree there is gross inequality in NZ. The “rich” (whatever that means -is that more than 30,000pa? ) pay all the tax.
No wonder they leave and this country is going backwards.
January 1st, 2008 at 7:40 pm
As well as dealing with the holes in the fence we ought to reassess our community values. The sort of people we see treated as hero’s in TV ones Property Climbers were once considered scoundrels. These people don’t create wealth (as they claim) they take advantage of asset inflation, and someones retirement fund looses out.
…….
Henry George Land Tax (Something to think about).
Henry George proposed that the rent of land should be paid to the community. This payment would satisfy the equal rights of all other members of the community — without disturbing individual title to land, fixity of tenure and undisturbed possession. This method of making land “common propertyâ€? may also be called “conditional private property in landâ€? (payment of rent to the community) as opposed to “absolute private property in landâ€? (private collection of rent).
http://www.henrygeorge.org/rem0.htm
January 1st, 2008 at 7:54 pm
The Smarto’s and The Bushes: How 1% gain 70% of the wealth in an asset inflation economy:
http://www.moneyweek.com/file/24214/exposing-the-cracks-in-the-financi al-system.html
January 1st, 2008 at 9:44 pm
bjchip: “NZ could take a 20% haircut in housing and survive quite nicely IMHO” I dont understand what you mean by NZ housing taking a 20% haircut. Do you mean a 20% drop in house prices?
SleepyTreehugger: “It has nothing to do with the fact that the Harvard Institute for International Development conveniently “botchedâ€? the privitisation of Russia’s economy in the early 1990s effectively destroying it and thus eliminating a major international trade rival”
Absolutely wrong. The next decade will see the rise of Russia under Putin and you will see a new economy that is stronger than the American one. Keep watching. As Western economies weaken, the Russian (eastern?) economy will continue from strength to strength. In part because they understand the muslim point of view (even if they do not accept it) but also because they are much more pragmatic than the western economies.
Mouldwarp: bang on brother. You have hit the nail on the head. Your analysis of what a free market means is correct.
Your analysis of the attitudes of tax users versus the tax providers is valuable in the current climate.
getsteve: you forget that in pre-cultural societies NO-ONE had any wealth. They had only what they could pick from the nearest tree. When the tree was bare, they all went hungry and waited for next spring. Wealthy people are smart because they have enough brains to understand the seasons, and the need to harvest and save. You seem to be extolling the virtues of people who are too stupid to plan and save for the future. “discretionary wealth” is all about planning for the future rather than eating 100% of what is on the tree today. I bet you don’t honestly know a single “wealthy American who disagrees with your morals”
As regards house prices…The American market is diametrically opposed to the NZ market. America has a capital gains tax, and the collapse of the non-prime market has nothing to do with housing over-supply, and everything to do with bad lending policy.
In NZ, we have no capital gains tax, so our finance market is very different. The bad lending policies here are similar, but don’t affect the property market the way they affect the second hand car market. House prices will not tumble the way they are doing in the US.
“Tax loopholes”. What exactly is a tax loophole, other than a mechanism that alows me to keep MY OWN money, rather than giving it to a dumb person, who makes themselves sound more deserving than myself???????? I have a sick child that needs medical care for the rest of his life, so WHY SHOULD I PAY MORE TAX THAN IS NECESSARY??????? Why should I pay for a stupid solo mother who wants to have her third kid to a third father, and retain her comfortable lifestyle??? (YES, I know such people!!)
As far as I am concerned the government has only one function and that is to stop bullies taking what they shouldn’t have. In NZ, the original bullies were the NZ Company, stealing from Maori, and today, the bullies are the tax dependents like solo mothers.
When all the nett tax payers leave NZ and go to Aussie, this country will have a bit of waking up to do. All the land will still be owned by people overseas. (Other than Maori land)
jh: good link. It shows that there will always be a tussle between those who spend less than they genuinely earn and those who genuinely control more assets than they create. There are also always those who spend more than they earn. Such people are always the destroyers of society.
January 2nd, 2008 at 12:47 am
Yes … 20% drop in housing prices.
January 2nd, 2008 at 9:14 am
greengeek Says:
January 1st, 2008 at 9:44 pm
Mouldwarp: bang on brother. You have hit the nail on the head. Your analysis of what a free market means is correct.
……………..
In the context of the property market decisions are made around the beliefs of the suppliers such as 1. Global warming is a hoax. 2. Energy will be a temporary problem (which technology will soon solve). I posted an example (above) where a property developer refers to his (and others?) houses as poorly located behemoths
Without the guiding hand of government a quick profit will always win out over doing the right thing in the long term.
Suppliers are powerful enough to influence government policy (ie a large employer and donations) so that (for example) the NZ property market is globalised.
Marketers take advantage of this via the internet ensuring that foreigners are aware of the difference in relative property markets and are encouraged to enter at the top of the market (view and seashore) pushing Kiwis (voters) down suburb.
There is no balance in the human population (yet) Officials say that NZ’s population will never be large but we will (perhaps) have another million by 2050, but given the size of the world population we don’t know what will happen; a lot of people just want space.
Meanwhile you can take your scissors and cut around the average person as what goes on around them has little to do with them. The power and decision making comes from government and their partners in the property sector (Politicians don’t address issues; they obfuscate) The rewards are heavily centered towards the top, whereas the costs /benefits lower down (economic assumptions) are debatable.
[”greenies” are ring-fencing cities …holding up the supply of land…. so whose having all the babies???
Compliance costs are too high…. Well maybe there is a relationship between existing infrastructure and the number of existing residents and one more (bale of) straw……. and maybe if so many developers hadn’t made the rich list, and investors didn’t take advantage of over generous tax policy and (unearned) asset inflation…. houses would be more affordable]
January 2nd, 2008 at 9:27 am
Even if you don’t understand economics well, my feeling is that intuition is often correct. My intuition tells me that it is wrong that Poms can go to an exquisite island of Cyprus, do a little developing and take off with $200,000 profit (Pay Off your Mortgage in Two Years). The others residents are little more than seagulls on a rock.
PS you can bet that the PR undustry is in full force when it comes to the activities of property developers. New Zealands crossing of the Rubicon under Fieldmarshal Clark and Co is the great untold story.
January 2nd, 2008 at 12:38 pm
Where’s Mouldwarp been all these years (his market theories seem ought of date and frankly…… Mouldy)????
In the last two decades, economic policy has been dominated by a belief that greater reliance on the market is desirable. In practice, however, alternatives to government involvement have not lived up to expectations. As a result, despite strenuous efforts in a number of countries, the role of government in the economy has diminished only marginally. The mixed economy will be with us for some time to come.
http://www.abc.net.au/money/currency/features/feat2.htm
January 2nd, 2008 at 12:47 pm
Truth is in politics all adherents need is a fig leaf of an idea that will allay a conscience or prop up a selfish belief system.
January 2nd, 2008 at 10:50 pm
jh,
I think you answer your own point in the earlier piece you quote. The market continually self-corrects. It *punishes* waste and misallocation of resources. So, yes, people will get burned. This is the market in action, it is not a failure of the market.
Contrast that with the state where incompetence and waste are rampant. Private companies that are so wasteful and useless run out of money and have to close, with the resources automatically getting reallocated to efficient enterprises providing services that people actually want to buy. Yet hugely wasteful and incompetent government departments, rather than being closed down, end up instead with still more tax-payers’ millions being thrown at them to “turn them around.” Companies can’t just tax people at the point of a gun like the government does; they have to earn their income though voluntary, peaceful trade.
bjchip,
Your concern seems to be inequality rather than poverty. Let’s not conflate the two terms. I do not care one iota about inequality, and I suggest you shouldn’t either. Don’t lose any sleep over Bill Gates and his billions: Just be happy for him (I fully realise that encouraging and exploiting such envy is the major tactic of the left to get themselves elected to power).
- “Efficiency? The market sucks. The alternatives also suck.”
Silly statement. If you compare the efficiency of free market economies with that of state controlled ones you will see there is, well, no comparison. Free economies are *vastly* better at creating wealth and lifting people out of poverty; even China and India have finally recognised this fact now. We’re not debating how many angels can dance on the head of a pin here; this stuff really matters. It has been calculated that certain Soviet economic activity actually *destroyed* value along the way, yet there was no free market to put an end to such madness and reallocate the resources to something useful. A working free-market economy is the most powerful anti-poverty tool known to man: everything else is just a sticking plaster by comparison.
By contrast, more state intervention means more pandering to special interest groups, more corruption and more inefficiency and waste (the Green Party, being such a special interest group, is perfectly happy with this situation).
- “The point of departure here is how the market vs a directed economy respond to a CHANGE in conditions. I maintain that the directed economy stands a better chance of pre-positioning itself, but examples of either escape me at this hour….”
How is it conceivable that politicians - people whose overwhelming concern is to deliver plundered pork so as to be re-elected at the next election - could, firstly, accurately predict the future and, secondly, respond by devising and implementing appropriate policies? Do you really think the venal, squalid little opportunists that get themselves elected to parliament are in any way up to what is in any case an impossible challenge? That’s the paradox - the more powers the state grabs for itself at the expense of our liberties, the more those powers are used by grubby lowlifes purely to buy elections, rather than for for what you would consider to be their legitimate, high-minded Olympian purposes.
But there is actually a broader, more crucial point here: Our concern should be to maximise individual liberty, not maximise economic output. It so happens that a free-market economy *is* the most efficient way of generating wealth for everyone; but even if the reverse were the case - that a strict command economy were the most efficient - that could never be a mandate for our freedoms to be curtailed.
January 3rd, 2008 at 8:39 am
Mouldwarp Says:
I think you answer your own point in the earlier piece you quote. The market continually self-corrects. It *punishes* waste and misallocation of resources. So, yes, people will get burned. This is the market in action, it is not a failure of the market.
…………………………………….
I’ve been thinking of the property developer versus town planner situation. The developer looks at the immediate profit. The individual units are compromised by cramming, but the extra units more than compensate for the lowering of the value caused by cramming.
The other thing is that the real estate market conducts itself in what is (supposed to be) civil society. Civil Society implies that we don’t take advantage of weaker members and yet this is just what many property investor/ real estate agent (combo) do. Society doesn’t benefit and no wealth is created . For a fat fee you can do a mentoring course and learn how (as a property investor) to find the best agent who will spot mugs (sellers) for you.
Government bloating is another issue.
Libertarians seem to want to be free to have as much as they want, however it is the contract of civil society that we are concerned about the welfare of everyone. If one group have everything (acquired not earned) and the other nothing, the two groups are nothing but lions and hyenas fighting for survival and the law of the jungle applies.
January 3rd, 2008 at 9:07 am
Frankly (and I don’t claim to be an expert) I don’t think this country is going anywhere at the moment> Commodities (dairying, grain) Tourism (a race to the bottom for many), property development (go overseas and get ‘em). The people at the top are driving policy I think. Our lifestyle was our comparative advantage.
PS while a lot of dummies are reveling in the wealth effect of higher house prices a lot also think like me.. and a lot don’t think much about anything … they are adapters.
It says something about democracy that governments can globalise the NZ property market and not tell anyone
January 3rd, 2008 at 1:16 pm
George Monbiot on Libertarians
“If you belong to a small group of intelligent hominids, all of whom are well-known to each other, you will be rewarded for cooperation and generosity within the group. (Though this does not stop your group from attacking or exploiting another). If, on the other hand, you can switch communities at will, travel freely, buy in one country and sell in another, hire strangers then fire them, you will gain more from acting only in your own interest. You’ll have an even stronger incentive to act against the common good if you run a bank whose lending and borrowing are so complex that hardly anyone can understand what is happening.”
http://www.monbiot.com/archives/2007/10/23/libertarians-are-the-true-s ocial-parasites/
January 3rd, 2008 at 2:04 pm
Again I tend to agree with Mouldwarp at least in sentiment with some reservations.
State intervention in the economy does tend to be inefficient, wasteful, and fragmented, because they have to take into account diverse and often conflicting special interests and are prone to cooption by dominant special interest groups (Business Round Table?) and is prone to the law of unintended consequences, but in saying this its frankly misleading to say that government intervention never yields positive results. Government investment in infrastructure that has been the prime driver of economic development over the last 150 years, which is often necessary, because of the prohibitively high initial capital costs, long payback periods and general risk aversion of capitalists who prefer to socialise the costs of investments in research and construction of infrastructure to through State patronage, although they decry the intervention by government when it is on anothers behalf, but are only too eager to take advantage of interventions on their behalf.
Large firms are just as prone to inefficiency and waste (a phenomen known as diseconomies of scale), but are able to survive what would put smaller firms under, due to their sheer scale.
The New Zealand government under the Liberals heavily invested in railroads, shipping, electricity, Port facilities, the telegraph system, divided up the great estates into small farmers and provided cheap credit to settlers under the advances to Settlers scheme to buy the land, hired overseas experts to enable farmers to incorporate advanced agriculture methods and technologies, helped them clear forests and lay down English style pastures with the help of seed merchants etc.
Mouldwarp
Companies can’t just tax people at the point of a gun like the government does; they have to earn their income though voluntary, peaceful trade.
greengeek
“Absolutely wrong.”
Precisely what did I say that is wrong pray tell?
The Russian economy did collapse even further from the already dismal level at the time of the collapse of the Soviet Union.
How can you say 2,500% inflation, productive output fell by 40 to 50 percent of pre-Soviet levels, wages weren’t being paid, expenditure on science and technology development fell to 0.37% of the previous level etc isn’t economic collapse?.
“Tax loopholesâ€?. What exactly is a tax loophole, other than a mechanism that alows me to keep MY OWN money, rather than giving it to a dumb person, who makes themselves sound more deserving than myself???????? I have a sick child that needs medical care for the rest of his life, so WHY SHOULD I PAY MORE TAX THAN IS NECESSARY???????”
Precisely because “tax loopholes” are designed by governments to favour one market participant at the expense of another another and those favoured market participants are given a competitive advantage that they shouldn’t have. Its a form of social engineering as bad as the EFB or the “anti-smacking” Bill.
January 3rd, 2008 at 2:43 pm
Mouldwarp
“Companies can’t just tax people at the point of a gun like the government does; they have to earn their income though voluntary, peaceful trade.”
Not anymore they can’t thank God, but thats just what willl happen if vulgar libertarians like Murray Rothboard have their way and in the US its already happening. Not to mention they are able to use the the State’s force when they need to.
January 5th, 2008 at 8:58 pm
jh,
You really post too often and too incoherently for a proper response. But anyway…
- “Libertarians seem to want to be free to have as much as they want, however it is the contract of civil society that we are concerned about the welfare of everyone.”
What contract is that? I never saw it. And who, precisely, is this “everyone” that we have to be concerned about? Since you are defending the status quo I presume by “everyone” you actually mean “those (and only those) who happen to live in New Zealand.” I can’t imagine any moral argument that could defend such selective compassion. In global terms there is no poverty in New Zealand, so if you are going to justify the state taking our money by force in the name of helping the poor, shouldn’t you actually insist that it goes to the genuinely poor, who all live overseas? If you are going to argue that I should only be concerned about fellow nationals, rather than about everyone equally, then I’ll tell you now that I deplore such ugly sentiments.
The reality of course is that the state has granted itself the power to take the workers’ money by force in the *name* of helping the poor, yet the entire system has inevitably been captured and controlled by special interest groups to enrich themselves, and by unscrupulous politicians who use the money purely as pork and domestic election bribes. So even if there were any moral merit to your argument, the reality is that it will inevitably become utterly corrupted.
- “If one group have everything (acquired not earned) and the other nothing, the two groups are nothing but lions and hyenas fighting for survival and the law of the jungle applies.”
Remember that wealth is created, so we’re not talking about people fighting over a fixed amount. In a market economy you can only gain wealth by providing goods and services to others who wish to freely trade with you for their own benefit. It’s win-win. The system is notable for its complete absence of coercion or violence.
Sleepytreehugger
- ‘“Companies can’t just tax people at the point of a gun like the government does; they have to earn their income though voluntary, peaceful trade.â€? Not anymore they can’t thank God, but thats just what willl happen if vulgar libertarians like Murray Rothboard have their way and in the US its already happening. Not to mention they are able to use the the State’s force when they need to.’
You seem *very* confused about what Rothbard stood for. Here’s a link:-
http://www.lewrockwell.com/rothbard/rothbard-lib.html
January 7th, 2008 at 2:45 pm
Been away, missed the fun!
Mouldwarp said some things that are a little bit out of date.
But of course, as has repeatedly been shown, tax cuts for the “wealthy� actually tend to result in them paying far *more* tax than they were under the old regime
What studies? I think you will find that “voodoo” economics has been discredited.
Some things that are just wrong
I don’t think you understand what the term “market failure� actually means. The prices that emerge from free markets are axiomatically the “correct� ones. They literally cannot be “improved� upon by any central planner, only distorted.
When people’s welfare is not maximised for the resources spent, when markets degenerate into oligopolies (like our grocery market), when polluting the environment is more economic than not, when valuable hardwood timber is pulped for paper… These are all expected outcomes from “free markets”.
We must remember that the choice is not “command and control” like Stalinist USSR or “free market” madness that no country has ever implemented, being such a transparently stupid policy. The question is: “To what degree should the state interfere with the operations of markets?”.
And sometimes mouldwarp is being naughty…
Because politically appointed central planners ,spending other people’s money, magically possess the perfect information which eludes everyone else, right?
Wrong. The professional central planners have less distorted incentives. An obvious example is energy. Central planners can implement policies to increase efficiency, carefully husband non-renewable resources and shift to renewables. Market players OTOH aim to increase usage and profits and do not care at all about efficiency.
Some time mouldwarp is just playing stupid. Sad, but true.
- “Which is interesting because we have our own burgeoning overseas debt and current account deficit problems. And the housing market is a key part of the problem. �
I’d ask you to explain and justify any of that nonsense, but I know I’d be wasting my time.
Growing debt and deficit is definitely some sort of a problem. Whether or not it is a crises is debatable, but it is not debatable that it is a problem. There is evidence that about 40-% (from my memory) of OS debt was borrowed to buy houses. Borrowing for non-productive investments is a problem.
And we know that mouldwarp does not like Keynesian economics…
You mean the over-tax that this government has extorted from the workers?
In simple terms what governments do in booms is tax and save, in recessions they borrow and spend. There has not been, since Maynard Keynes thought of it, a better way of managing a countries economy found. There have been several attempts but they have all ended in failure.
greengeek is just viscous.
today, the bullies are the tax dependents like solo mothers.
Golly. Plummeting to new depths. How icky!
mouldwarp again displaying the glorious naivety of economic fundamentalists (right or left the fundys are indistinguishable).
Private companies that are so wasteful and useless run out of money and have to close,
Not so! In new industries patents protect them, Xerox and Poloroid (sp?) are examples, and in mature industries market power usually boils the industry down to just a few players whit enormous barriers to entry (car manufacturing, fast food restaurants). Hmmm…. I believe that pharmaceutical companies spend more on advertising than research now.
But it is possible for mouldwarp and I to agree, almost, on some things!
I do not care one iota about inequality,
Inequality if it gets too rampant becomes a destabilising force. But that is not the main point. I have a little saying I made up that I use a lot. “It is not a sin to be rich. It is a sin to be poor. Being poor is a sin of the rich”. That underlies my whole economic philosophy, so perhaps mouldwarp and I do not really agree.
But mouldwarp does not understand history.
the efficiency of free market economies with that of state controlled ones you will see there is, well, no comparison.
Can mouldwarp, or anyone, produce an example of a society that developed economically from peasant agriculture to being industrialised using free market economics? (I know of two, but I wonder if others can spot them, and they both had something in common that made them special cases) The two startling economic miracles of the 20th. century were USSR up to 1960 and China up to now. (China does not and never has had a free market in anything) Both were command and control economies during the development phase. Free markets have their place, but it is not everywhere. And there is no point having a wonderfully efficient free market and have the people mired in poverty.
How can one person be so consistently wrong about everything they say? Mouldwarp again…
Soviet economic activity actually *destroyed* value along the way,
That is complete nonsense.
A working free-market economy is the most powerful anti-poverty tool known to man
By what measure? Mostly nonsense!
Sometimes mopuldwarp just misses the point by so much it has to be that mouldwarp is taking the piss (and good ol’ Bliss is taking the bait)
Our concern should be to maximise individual liberty, not maximise economic output.
Clearly mouldwarp has never been in the position of choosing to feed his children properly, shoe them properly or take them to the doctor. Freedom, with out material sufficiency, is useless.
That said:
Individual liberties are a good thing.
So are collective liberties.
So is economic sufficiency.
So is sustainability.
Economic fundamentalism of any sort is not going to get us there. Which is why I am a member of the Green party and not the Act party.
Sometimes it is clear mouldwarp was out the back sparking up when he should have been in economics 101 taking notes.
free-market economy *is* the most efficient way of generating wealth for everyone;
No. All free-markets do is find prices at which markets clear. That is all they can do. Starvation is not a market failure!
From the “ignorance is bliss” department mouldwarp says:
In global terms there is no poverty in New Zealand
There are two accepted ways of measuring poverty. One is absolute poverty. From memory it is living on less than US$2 per day in 1990 PPP terms, and the other is relative poverty where people are too poor to access material resources that are generally considered the norm in the society they live in. In ours that includes shoes, warm house, good food and (bizarrely) a TV. Plenty of people in this country in that boat. SFA in that boat pre-1990.
I get a perverse pleasure from agreeing with mouldwarp.
In a market economy you can only gain wealth by providing goods and services to others who wish to freely trade with you for their own benefit. It’s win-win.
I would rephrase it by dropping the only as there are other ways. But the wonderful thing about a free market is you can make a widget, or grow a carrot, put up a sign (widget/carrot for sale) and sell it to some one who wants it and can pay for it. Great. Not a sound way to organise the provision of essential services that tend to be natural monopolies though.
From the “My head aches” department.
Who is confused over at lewrockwell.com when A classic, newly discovered article from Murray N. Rothbard. is touted? Newly discovered…classic… Please could some sensible people change sides so there can be some good debate with the right wingers?
peace
W
January 7th, 2008 at 8:03 pm
I have been researching “libertarian” on Wikipaedia…. The article states:
“Of particular interest to economists is the “New Zealand Experiment”, which began in 1984 when Roger Douglas became Minister of Finance and began radically restructuring the country’s economy to fit the libertarian model[4]. Over the next 15 years, New Zealand’s economy and social capital faced a steady decline: ???
http://en.wikipedia.org/wiki/Criticism_of_libertarianism
January 7th, 2008 at 11:11 pm
What exactly do you mean by viscous??
Maybe I am out of step with others, but I believe that any mother has a responsibility to choose a mate who will stay around for the benefit of the offspring. It’s not hard.
If she chooses poorly, and the father runs away, the children are left without a father and she becomes a solo mother. This is a detestable situation because the children (and the whole of society) suffer in many ways.
Obviously my criticism does not apply to those who have lost their husband through death (a very small percentage of solo mothers), or mental illness.
My criticism applies to the solo mothers who now make up a huge percentage of our welfare spending, those mothers who are happy to make bad choices of mates, and then kick the blokes out and go on the DPB.
Sometimes (ie, often) such women then proceed to have even more offspring with other (unsuitable) males.
Explain to me why taxpayers should fund poor decisions by bad mothers??
Can you not see how a good quality society is harmed by funding poor decisions??
Can you not see that there are many “good” taxpayers who are not greedy capitalists??
People who are tax dependents (eg: solo mothers) are bullies because they take from decent people those things that the decent people would not willingly relinquish if they had a choice.
I know many decent people who scrimp and save to afford the basics for their kids, and I know a significant number of beneficiaries who have far more than the basics. All paid for by the efforts of the decent people who make good, safe, conservative decisions.
That is why I labeled beneficiaries (particularly solo mums) as bullies.
Sadly our government has become locked into a “Robin Hood” kind of mentality.
This blog is about good and bad monetary policies. Financial bullies should be stopped in their tracks. That applies to the wealthy (eg the World Bank) but also applies to the lazy and stupid (solo mums) who actively seek to profit from those whose efforts swell the public purse, through good decisions and hard work.
January 8th, 2008 at 12:45 pm
What exactly do you mean by viscous??
I blame my spell checker! greengeek is being vicious.
Maybe I am out of step with others, but I believe that any mother has a responsibility to choose a mate who will stay around for the benefit of the offspring. It’s not hard.
Not hard? How old is greengeek? How many character judgements has greengeek had to make? (a) Predicting the future is hard (b) The male may die (c) the male, surly, deserves some credit for creating a solo mother (and I know of a lot of solo fathers).
If she chooses poorly, and the father runs away,
I expect greengeek is sixteen years old. That is such a naive thing to say. “chooses poorly”… Who is responsibility is a failed relationship?
are happy to make bad choices of mates, and then kick the blokes out and go on the DPB.
What evidence do you have of this? This stinks of prejudice.
Can you not see how a good quality society is harmed by funding poor decisions??
And can you not see how society benifits from ensuring all children have access to their material and emotional needs? And can you not see how hard that is to do? The DPB system is not perfect but it is of huge benifit to society? Freeing families from abusive fathers (or, often abusive mothers) by giving the non-abusive parent the financial options to get out.
I believe the average stay on the DPB is three years.
…the lazy and stupid (solo mums)…
I have had enough of your opinions on this. Go stand in the corner until you are willing to stop being a mean vicious little toad.
peace
W
January 9th, 2008 at 8:59 pm
Perigo Formally Announces Candidacy
http://groups.google.com/group/nz.politics/browse_thread/thread/d9fcde 2db8492e4f/b6ccde17a6354671?hl=en&lnk=st&q=Zenith+Applied+Science#b6cc de17a6354671
January 9th, 2008 at 9:05 pm
I mean networking, rotary, secret hand shakes, back handers, eclusive brethertons…lets all get stuck in> Consume thy nieghbour
etc, etc
January 9th, 2008 at 9:21 pm
The DPB is one of the thorniest issues as children are in a way held hostage. Bliss has cherry picked acceptable behaviour but the claim is that the DPB encourages unmarried girls to get up the duff as a career decision. It’s a tough call for society but the answer isn’t a “don’t go there response”. Welfare shouldn’t be squandered and the response to the issue shouldn’t be “don’t go there”. There are many good deserving people in the community who will need welfare so it shouldn’t be squandered. For that matter most people wouldn’t expect a “green” (as in foliage) party to be primarily advocates for one group as that approach stifles objectivity and limits its appeal to a wee minority.
January 10th, 2008 at 8:28 am
JH:
I think you get into a problem when you try and discern between the “deserving” poor and the “undeserving” poor. Firstly, who defines what is deserving or undeserving? Secondly, even if a parent is undeserving, does this also make the children undeserving?
My personal opinion is that if there is going to be a welfare system, society has to accept that some “undeserving” people will benefit from the system. Obviously efforts need to be made to minimise the number of “undeserving” people benefitting from the system, but beyond that, this just has to be accepted as an unavoidable cost. The alternative is to let people starve.
January 10th, 2008 at 9:43 am
That is a very succinct and clear analysis of the problem Samiuela. If there is a welfare system, someone will rort it. If there isn’t a welfare system, others will starve.
The observation was made some time ago that to gauge the relative fairness of two societies one need only consider how one would choose if prior to birth you could choose which society… but not your parent’s financial status.
On such a test we don’t do that well.
Nor do we do all that well at preventing the rorts.
respectfully
BJ