Archive for the ‘Invisible hand’ Category

“Not just dangerous but stupid, and incomprehensible”


In a piece written about the now infamous Paul Ryan (R-WI),  who “who likes to plan for the really long term is Paul Ryan, the Republican nominee for U.S. vice president. By 2050, Ryan’s budget plan would reduce federal spending outside health-care programs and Social Security to 3.75 percent of GDP, down from 12.5 percent last year, according to the nonpartisan Congressional Budget Office”. This is almost as ridicolous as Mitt Romney’s assertion at the recent debate in Denver, that government spending in America  is the same as government spending in Spain and his plea that “I don’t want to go down the path to Spain”. Despite the fact that America has is the richest nation on earth, is the world’s largest economy, that America has a population three times the size of Spain and that Spain is in the failed eurozone, while America is not.

He goes on to write “According to the World Bank, government spending minus health care was already lower in the United States than in all of the European Union, Japan, China, and India in 2009, the latest year with comprehensive figures. At just 3.75 percent of GDP, the United States would be one of the world’s lowest spenders. The only countries that spent less in 2009 were Equatorial Guinea, the Democratic Republic of the Congo”. He goes on to justify his assertion noting “The first of these three is a small West African country where per capita income is as high as in much of Europe, but life expectancy is just 51 years; a tiny elite monopolizes revenue from oil exports while the majority stays mired in poverty”, adding that the DRC is on the World Failed States index.

He goes on to argue, forcefully that “the United States isn’t going to turn into a war-torn sub-Saharan republic overnight because of budget cuts. But Ryan and his cohorts do want to replicate some aspects of life in Africa’s poorest countries. They prefer to replace public services paid for by taxes with programs run by charities; because the decision to fund the latter rests with the individual, no state power tells you how much of your income to surrender. They also want many of the services now paid for by the federal government to come under local control, as they are by default in failed states”.

Thus the notion of taking a lead from the poorest, most badly run countries is not just dangerous but stupid, and incomprehensible. He adds “The problem with this approach is that an economically efficient outcome is very unlikely. In principle, a government’s spending has three motivations: 1) it can provide something more efficiently than the private sector, 2) it can ensure quality in a way that the private sector can’t, or 3) the private sector alone doesn’t have an incentive to provide enough of the item in question”. Indeed, a similar argument has been noted here before, with the GOP comparing the private sector and the state sector as equal, when they are patently not, thankfully.

He ends his piece noting the sheer stupidity of Ryan’s plan when he takes it to its logical conclusion, “If we rely on charity to fund all these items, we may simply end up with too little of them. Imagine, for example, a United States with a stripped-down Justice Department, a bare-bones military, and only tiny agencies to deal with issues like highway safety, air traffic control, food safety, and the disposal of nuclear waste. All these would rely on individuals’ goodwill to continue providing services that protect the entire population”.

Government is there for a reason, to “drown it in the bathtub” as some have suggested is to be blinded by a totally failed and morally bankrupt set of ideas.

“We don’t succeed on our own”


We rely on each other other.

One down, four to go


Today marks the first anniversary of the UK coalition government. Much has happened over the last year, but perhaps among the most important was the government’s desire, and moderate success, at cutting the budget deficit that was inherited from the previous government.

In an article reviewing the last year, The Economist, says that “”pollsters reckon that when the coalition was formed, most people thought that both David Cameron, the Conservative prime minister, and Nick Clegg, his Liberal Democrat deputy, were right to share power”, yet in seems now this trend is reversing with “52% said that a hung parliament was bad for the country in principle, a figure that has now risen to 58%. The shift comes entirely at the expense of those who had said it was a good thing”.

What has become apparent is the government as a whole has suffered a number of humilating crises. Including, but not limited to, rushed plans to privatise large sections on public forest, which was then reversed and ill thought out and dangerous plans to radically alter the structure and ethos of the state health provider, the National Health Service, into a more commercialised, market driven service, seemingly regluated by the famous “invisible hand”, with current plans said to be currently on hold with a “listening excercise” said to be underway.

After the junior coalition party, the Liberal Democracts having suffered huge losses in the local elections and with it the regretabable loss of the referendum on the Alternative Vote both of with have lead the party leader, Nick Clegg, calling for a more “musclar liberalism” after heavy criticism of his leadership for being seen as being too close to the Conservative leader and prime minister, David Cameron.  

Many have lambasted Clegg for supporting NHS reform only to be one of the most vocal driver of the dangerously individualistic proposals to be watered down leading to tensions within the government. In addition to this the conflict in Libya which will purportedly cost £1 billion with outgoing Defence Secretary Dr Gates saying the figure for the US is $750 million.

However, it is unlikely the government will fall with both parties agreeing that the deficit must be dealt with perhaps the thing that will see the government through to the next election which is due in May 2015.

Here’s hoping.

Myth of privatisation


In a policy launch by David Cameron recently, the UK prime minster, set out a new agenda where the State would effectively cease to do its job.

In a speech Cameron said that the reforms, if they can be called that, “will put in place principles that will signal the decisive end of the old-fashioned, top-down, take-what-you’re-given model of public services. And it is a vital part of our mission to dismantle Big Government”.

Discussing health care for his son he says that, “I never understood why local authorities had more control over the budget for his care than Samantha and I did”. He assumes that there is those who are less well off have the time to pore over the budget of their local hospital! Not too mention the expertise needed that few ordinary people understand that is best left in the hands of experts, who are accountable.

He does have a point when he says that, “stories about bureaucracy over-ruling common sense, targets and regulations over-ruling professional discretion, and the producers of public services over-ruling the people who use (and pay for) them – became the norm, not the exception”. Indeed this should be tackled, as personal responsibility for people’s decisions is at an all time low and needs to be addressed.

Yet, he says mistakenly, “that public services should be open to a range of providers competing to offer a better service”. He goes on to list all the usual “arguments” about choice and competitiveness for the betterment of society. As has been shown time and again there are a limited number of areas where the State must control certain services, namely education and health care. There are other areas where a strong case can be made on the grounds of national security for state ownership, such as oil and gas and water utilities.

The arguments that are proffered for privatisation remain the same, but the evidence does little to support them. The oft cited examples of Sweden, Norway and the Netherlands where the State has a monopoly on health care with no exceptions, paid for by high tax with what is essentially a “top down model” but with a strong sense of community. In the related case of privatisation of the state broadcaster, the arguments made for more choice and better service are the opposite to what happens. Those who are interested in minority programmes, that are not profitable, are simply not produced, while the result is a mass of sameness due to lowest common denominator hunt for ratings and advertising revenue.

Cmaeron writes that his party “will give more people the right to take control of the budget for the service they receive”. This is another myth, that people can influence, and indeed change the policy of huge organisations just by engaging with them.  What normally happens however is that business gets involved and simply due to the amounts of money available to them they shout loudest and get heard most.

Not only that, when business gets involved there maybe competition initially, but the invisible hand really is invisible and a quasi monopoly begins to form with little difference between prices and new entrants finding it difficult to enter and compete.

This very American model, widely regarded as one of the most unequal societies on the world. Not only that, Cameron’s affinity for the Swedish model fails to recognise that nations like Sweden are highly ordered societies with very high taxes, neither of which Cameron has expressed much agreement with.

The invisible hand really is invisible


There is something very wrong when banks serve only their employees.  Maybe the invisible hand really is invisible.

Lessons to be learnt


In an article on current economic ideas, John Quiggin,  explains how even after the near total collapse of “the market” which was only saved be having governments bail out a combination of reckless, incompentent and greedy banks, he argues that the  system of the ideas that led much of the Western world for decades is still being defended.

He notes how “theories, factual claims, and policy proposals that seemed dead and buried in the wake of the crisis are now clawing their way through the soft earth, ready to wreak havoc once again”. He continues saying how “banks and insurance companies bailed out on such a massive scale by governments (and ultimately the citizens who must pay higher taxes for reduced services) have returned, in zombie form”.

He argues that the period from 1985 called the “Great Moderation” as a time of stability is largely inaccurate due to the fact that “this idea depended on some dubious statistical arguments and a willingness to ignore the crises that afflicted many developing economies in the 1990s”. He rightly asks “If double-digit unemployment rates and the deepest recession since the 1930s don’t constitute an end to moderation, what does?”.  He notes, cuttingly how “central banks and policymakers are planning a return to business as usual as soon as the crisis is past”.

The second idea that he dismisses is that of the “efficient markets hypothesis”, the idea that “the idea that the prices generated by financial markets represent the best possible estimate of the value of any investment”. This idea is patently false and can only reach some validity with good solid regulation. This was seen most notably when rating agencies branded useless debt as AAA or even AA all under pressure from the market to keep the bubble going. Quiggin adds that “advocates developed elaborate theories to show that the billion-dollar values placed on companies delivering dog food over the Internet were actually rational. Others simply treated the dot-com bubble as the exception that proves the rule”.

He then discusses Dynamic Stochastic General Equilibrium which he definees as “the idea that macroeconomic analysis should not be concerned with observable realities like booms and slumps, but with the theoretical consequences of optimizing behavior by perfectly rational (or almost perfectly rational) consumers, firms, and workers”.

This idea can and should be easily dismissed along with the other idea he targets, the infamous, “trickle down theory”, which he defines as “the idea that policies that benefit the wealthy will ultimately help everybody”. This idea has recieved much praise particularly in America and has been praticsed since the last 1920s. It has spread to more neoliberal countries in Europe, including the UK over recent years.  He argues that ” Trickle-down economics was conclusively refuted by the experience of the postwar economic golden age”. He notes how the “idea gained more support during the triumphalist years of the 1990s, when, for the only time since the breakdown of Keynesianism in the 1970s, the benefits of growth were widely spread, and when stock-market booms promised to make everyone rich”. He concludes saying how “Median household income has actually declined in the United States over the last decade and has been stagnant since the 1970s”.  The final nail in the coffin for the absurd idea is that “the United States has less social mobility than any other developed country”.

Finally he deals with pivatisation, the argument that the private sector is better than the state at most things while returning a profit. This idea is generally good, however there are some cavets, it must be never enter the health systems, the armed forces (e.g. Blackwater) and should be used, if at all, with extreme caution in the education system.  He notes how “theoretical basis for privatization rested on the efficient markets hypothesis, according to which private markets would always yield better investment decisions and more efficient operations than public-sector planners”.  He argues that, when certain state industries that were rightly privatised, such as airlines, it lead to in increse in prices to comsumers and often the continuation of the monopoly albeit in private hands. 

However it should be reiterated here that privatisation is a good idea but that it must be applied very carefully and only in certain conditions.

Human rationality and the economic system


In a recent interview given by Dr Nouriel Roubini who despite the naysayers predicted the global collapse of capitalism that is continuing to happen around us.

In an interview given recently the the Daily Telegraph, Dr Roubini, says that there is more to come. He says quite accurately, that the next wave will be  that of governments. He told the paper that ” The crisis is not over; we are just at the next stage. This is where we move from a private to a public debt problem”.

He contiuned saying that “We socialised part of the private losses by bailing out financial institutions and providing fiscal stimulus to avoid the great recession from turning into a depression. But rising public debt is never a free lunch, eventually you have to pay for it”. So, all those critics that said that the banks were too big to fail and the whole financial system was based on them was well maybe just an understatment.  Now governments the world over are going to pay, both literally and figuratively for their (i.e. our) “generousity”.

Crucially, he believes Greece’s problems will see it, among others, leave the euro, as was mentioned on a post here recently. Roubini insists major reform is necessary, “We are still in the middle of this crisis and there is more trouble ahead of us, even if there is a recovery. During the great depression the economy contracted between 1929 and 1933, there was the beginning of a recovery, but then a second recession from 1937 to 1939. If you don’t address the issues, you risk having a double-dip recession and one which is at least as severe as the first one.”

Governments all over the world, but particularly in Europe and North America are going to have to make cuts that affect the way their very societies think about themselves. It will also be a huge challenge, perhaps the biggest challenge to democracy itself. Can governments get elected and stay in power when there are no tax cuts and spending increases every few years? What will happen when the extremes look increasingly effective, which over time they will? Worringly, what will happen when a country with a de facto one party state despite having many formal parties have to make tough choices? Where will the voters turn when they are faced with a real choice, will they be able to chose at all? 

Can democracy with its trust in the rationality and supremacy of the individual face the test that is fast approaching?

Collapse of authority and the excesses of capitalism


In an Irish Times article some time ago the hard left showed its cards. The article entitled “Primark row signals backlash against unsuitable marketing” shows just how far the loony left have bought into the idea of rights for children. Why did it not use a more obvious criticism and call a spade a spade?

The article opens with the fact that the “Irish Society for the Prevention of Cruelty to Children (ISPCC) started its confidential Childline service 21 years ago, it was getting regular calls from 17-year-olds under pressure to have sex. Today these calls are coming from 10- and 11-year-olds.” Despite the best attempts of the unhinged journalist to make the product, bikini swimsuits with padded tops for seven-year-olds, look perhaps as they would see it distasteful, luckily the “ISPCC’s director of services, Caroline O’Sullivan, does not think so.”

As the director says, “this product is a symptom of what is actually going on for children”.   The article continues saying, “It is not the first time adverse publicity has compelled a retailer to remove inappropriately sexualised products marketed at children. Tesco, for example, is not allowed to forget how it once had pole-dancing kits in its toy aisles.”

This also begs the question, who in their right mind thought that such a product would be appropriate for a child, when the world is, justly outraged at the child sexual abuse scandal sweeping the Catholic Church at the moment. Was it the unfettered desire for profit, or just the hope that they would just get away with it, even though, in their heart of hearts, they knew such a thing to be immoral?

The journalist thinks children pole dancing is “inappropriate”, I’d love to see what they call downright evil? Or maybe that word doesn’t exist in this journo vocabulary. Much of the problem is “not only that children’s desire for these things is fuelled by the media but also that parents do not know how to say no.”

Here we have a classic case of the disrepect of authority. However, it is not just in the home but in classrooms around the world and in our streets – it is everywhere. The French Revolution may have “freed” us from tyranny but it was only replaced by a new and even worse tryanny, that of the individual. Coupled with the belief that the individual knows best, regardless of age and that if anyone dare question someone’s actions, they would be impinging on thier “rights”

It is not that authority must go unquestioned it is that, we have gone to such extremes to get away from the 1750s/1950s, that we have only created a new tryanny that far outstrips the worst excesses of the previous tyranny, which, in some cases it undoubtedly was. When parents have lost the ability to say “no” then I fear that we on a path that can only lead to societal collapse.

Ireland’s lost decade


In a piece written some time ago, Gary Joyce argues for a greater sense of cmmunity in Ireland, but the argument could be easily extended to the UK, America and much of Western Europe. She begins by commenting how proud she is to be Irish. However she then asks questions such as “Are we ashamed that our health and social services routinely fail those that they are charged to supports? Are we ashamed that the politicians we elect refuse to accept responsibility for their actions, yet we continue to reward them for doing it? Are we ashamed that our desire for easy riches has led to the near collapse of our banking system, the bankruptcy of our State and the indebtedness of our children, while we constantly seek to scapegoat and blame others?”

She quiet rightly asks “If how we used the money of the “boom years”  is an indication of what we truly value, then the desperate situation in which we find ourselves now is a wake-up call to recognise and question those values”
The money that was wasted by the Government, but also by some of the people of Ireland, shows the emptiness of these “values”, it also highlights the tremendous greed that many experienced and where told were good things. The greed was excused away and was in some cases seen as the reason behind Ireland’s wealth.

Where are these people now that the good times are over? They are getting away with their sinful greed and incompentence by bailouts and golden handshakes. These were the people that were saying that regulation is a bad thing and that it hinders the “creation” of wealth. They were the one’s calling for the “voodoo economics ” that still plauge America to this day. People were calling a halt to this madness but alas, they were ignored and told that they were pessimists and should see that things were going fine and would continue to go well and even, get better.

Money is a powerful drug, once people have it they need more and more to fuel thier lifestyle, however it was not all who gained from this hysteria. Joyce contiunes saying “we know from the UN Human Development Programme that Ireland, with the UK and the US, is one of the most unequal societies in the world: the income of the wealthiest 20 per cent of our population is six times greater than that of the poorest 20 per cent.” Only a small number of people gained vast wealth to the detriment of society as a whole and the common good.

Joyce carries on, justly lauding the Japanese and Nordic economies and at the suggesting a national maximum wage. Can you imagine it, interfering in the market like that, the market that for all its “invisible hand” self correction brought the world to the brink of collapse only a year ago. Market interference, market regulation – BRING IT ON!

She ends her piece, noting how “the appetite for strong leadership is palpable everywhere”. She rightly points out that the Church as well as the political parties, trade unions and indeed everyone in Ireland is to blame and is now experiencing a totally rudderless leaderless country where no one has trust in anyone else.

This begs the question how can any of the current political parties or indeed people lead the country out of this and drag ourselves, kicking and screaming if necessary into a better country where money is not the beginning and end, but merely a means to an end – good schools, hospitals, low crime and low poverty rates.

An Irish general election is not only needed, a whole new political class is needed.

The end of neoliberalism?


A link I saw from the American Conservative magazine oddly enough, about an article by Paul Krugman writing in the NY Times about the economic differences, both percieved and real between America and Europe.

Krugman’s key quote: “Europe is an economic success, and that success shows that social democracy works”.

He goes on to discuss how in reality a hard core of neoliberals, from both Republicans and Democrats seek to associate social democracy with communism and how, according to their narrative  the result is utter economic decay and then collapse. Krugman however notes that “Since 1980, per capita real G.D.P. — which is what matters for living standards — has risen at about the same rate in America and in the E.U. 15: 1.95 percent a year here; 1.83 percent there”

Crucially he doesn’t paint Europe as some economic heaven with both zero unemployment and plenty of tax cuts. He understands that no country is in perfect financial shape during these years but he appreciates that the social good that is gained from high taxes pay for hospitals and schools as well as other services that citizens have come to expect.

He ends saying that which comes from having a European style economy that actually, in the long run, ends up having a greater effect on the social good

“Europe is often held up as a cautionary tale, a demonstration that if you try to make the economy less brutal, to take better care of your fellow citizens when they’re down on their luck, you end up killing economic progress. But what European experience actually demonstrates is the opposite: social justice and progress can go hand in hand.”

It is exactly this model that we must use to our avantage now that the model of little or no regulation and unquestioned belief in “the market” to solve all problems all of the time has come to an end. The sooner we realise that we are all interlinked and every decision that is taken must be taken with the common good in mind the sooner we can end the rabid individualism that led us to where we are today.