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Why I am What I am...

PostPosted: Mon May 25, 2015 8:35 pm
by Screw
For 72 years I have lived on this rock and I have seen many changes, some for the better but many for the worse. These are my thoughts about the economy in which we live based on those observations.

It’s one of the repeated lessons of economic history that money in the hands of the rich does much less good for the economy as a whole than money in the hands of the working classes and the poor. The reasoning here is as simple as it is inescapable. Industrial economies survive and thrive on consumer expenditures, but consumer expenditures are limited by the ability of consumers to buy the things they want and need. As money is diverted away from the lower end of the economic pyramid, you get demand destruction—the process by which those who can’t afford to buy things stop buying them—and consumer expenditures fall off. The rich, by contrast, divert a large share of their income out of the consumer economy into investments; the richer they get, the more of the national wealth ends up in investments rather than consumer expenditures; and as consumer expenditures falter, and investments linked to the consumer economy falter in turn, more and more money ends up in non-liquid speculative vehicles that are disconnected from the productive economy and do nothing to stimulate demand.

That’s what happened in the 1920s. All through the decade in the US, the rich got richer and the poor got screwed, speculation took the place of productive investment throughout the US economy, and the well-to-do wallowed in the wretched excess chronicled in F. Scott Fitzgerald's The Great Gatsby while most other people struggled to get by. The whole decade was a classic era of pretence, crowned by the delusional insistence—splashed all over the media of the time—that everyone could invest in the stock market and, since the market was of course going to keep on rising forever, everyone would thus inevitably become rich.

It’s interesting to note that there were people who saw straight through the nonsense and tried to warn their fellow Americans about the inevitable consequences. They were denounced six ways from South by all right-thinking people, in language identical to that used more recently on those of us who’ve had the effrontery to point out that an infinite supply of oil/gas can’t be extracted from a finite planet.  The people who insisted that the soaring stock values of the late 1920s were the product of one of history’s great speculative bubbles were dead right; they had all the facts and figures on their side, not to mention plain common sense; but as usual, nobody wanted to hear it.

When the stock market peaked just before the Labour Day weekend in 1929 and started trending down, therefore, the immediate response of all right-thinking people was to insist at the top of their lungs that nothing of the sort was happening, that the market was simply catching its breath before its next great upward leap, and so on. Each new downward lurch was met by a new round of claims along these lines, louder, more dogmatic, and more strident than the one that preceded it, and nasty personal attacks on anyone who didn’t support the delusional consensus filled the media of the time.

People were still saying those things when the bottom dropped out of the market.

Tuesday, October 29, 1929 can reasonably be taken as the point at which the era of pretence gave way once and for all to the era of impact. That’s not because it was the first day of the crash—there had been ghastly slumps on the previous Thursday and Monday, on the heels of two months of less drastic but still seriously ugly declines—but because, after that day, the pundits and the media pretty much stopped pretending that nothing was wrong. Mind you, next to nobody was willing to talk about what exactly had gone wrong, or why it had gone wrong, but the pretence that the good fairy of capitalism had promised people happy days forever was out the window once and for all.

It’s crucial to note, though, that what followed this realisation was the immediate and all but universal insistence that happy days would soon be back if only everyone did the right thing. It’s even more crucial to note that what nearly everyone identified as “the right thing”—running right out and buying lots of stocks—was a really bad idea that bankrupted many of those who did it, and didn’t help the imploding economy at all.

Re: Why I am What I am...

PostPosted: Mon May 25, 2015 8:36 pm
by Screw
Among the most common symptoms of an era of impact, in other words, is the rise of what we may as well call “crackpot optimism”—the enthusiastic and all but universal insistence, in the teeth of the evidence, that the end of business as usual will turn out to be the door to a wonderful new future. In the wake of the 1929 stock market crash, people were urged to pile back into the market in the belief that this would cause the economy to boom again even more spectacularly than before, and most of the people who followed this advice proceeded to lose their shirts. In the wake of the revolution of 1789, likewise, people across France were encouraged to join with their fellow citizens in building the shining new utopia of reason, and a great many of those who followed that advice ended up decapitated or, a little later, dying of gunshot or disease in the brutal era of pan-European warfare that extended almost without a break from the cannonade of Valmy in 1792 to the battle of Waterloo in 1815.

And the present example? That’s a question worth exploring, if only for the utterly pragmatic reason that most of my readers are going to get to see it up close and personal.

That the industrial world generally are deep in an era of pretence is, I think, pretty much beyond question at this point. We’ve got political authorities, global bankers, and a galaxy of pundits insisting at the top of their lungs that nothing is wrong, everything is fine, and we’ll be on our way to the next great era of prosperity if we just keep pursuing a set of boneheaded policies that have never—not once in the entire span of human history—brought prosperity to the countries that pursued them. We’ve got shelves full of books for sale in upscale bookstores insisting, in the strident language usual to such times, that life is wonderful in this best of all possible worlds, and it’s going to get better forever because, like, we have technology, dude! Across the landscape of the cultural mainstream, you’ll find no shortage of cheerleaders insisting at the top of their lungs that everything’s going to be fine, that even though they said ten years ago that we only have ten years to do something before disaster hits, why, we still have ten years before disaster hits, and when ten more years pass by, why, you can be sure that the same people will be insisting that we have ten more.

This is the classic rhetoric of an era of pretence. Over the last few years, though, it’s seemed to me that the voices of crackpot optimism have gotten more shrill, the diatribes more fact-free, and the logic even shoddier than it was in Bjorn Lomborg’s day, which is saying something. We’ve reached the point that governments are making it a crime to report on water quality and forbidding officials from using such unwelcome phrases as “climate change.” That’s not the action of people who are confident in their beliefs; it’s the action of a bunch of overgrown children frantically clenching their eyes shut, stuffing their fingers in their ears, and shouting “La, la, la, I can’t hear you.”

Now what can we do about all this? Let me start with an analogy; you'll never get your garden to grow by fertilising the sky. The fertiliser must be put down around the roots. By the same token we will never get an economy to grow by fertilising the rich. As I have shown above, an economy will not expand when the money is moved upwards, so by putting the money into the lower parts of the economy, the economy can and will grow. If the government persists in refusing to do so then we are in for dire times. When we expand the ability of low/middle income earners to purchase the goods/services we produce, then our economy can grow and expand. More people get employed in an expanding economy and they then spend more and so on. By depriving them of reasonably paid work the econmy will stagger along going nowhere.

John Maynard Keynes recognised this many years ago and saw a way to correct it. Yes, by printing money but with the proviso that the printed money stayed wihin the borders of the country. As the services developed using this printed money, the debt was paid. Futher, by keeping it in the country, inflation was never a problem.

We live in a Global Economy for better or worse but we need not adhere to the rigid constraints of globalisation. It is time for us to look to our own future not rely on the fortunes or not of other countries except as trading partners.

Re: Why I am What I am...

PostPosted: Mon May 25, 2015 9:22 pm
by phill
very reasonable screw
convincing the rich that they need to be not so greedy and rich however i have only really tried to do once ..
and to a woman who has always loved me, knows more about me than anyone else and would almost throw herself into a hellfire pit for me
but completely deaf to any thought of parting with dosh for any reason .. even when i pointed out that everyone would be happy and secure if all had what they need without struggling and until everyone is happy no one can really be happy and secure

next problem
how do we convince them of that

Re: Why I am What I am...

PostPosted: Mon May 25, 2015 10:24 pm
by Screw
In the next episode Phil.

Re: Why I am What I am...

PostPosted: Tue May 26, 2015 9:29 am
by aardvark_admin
I repeat my belief that in NZ, *property* investment is the big problem that is crippling our nation, creating much of our economic dysfunction.

When speculators and demand pushes property prices up with such regularity and frequency, people spend their money -- not on productive enterprises (which create jobs and real wealth) or on consumption but on chunks of land and buildings.

It wouldn't even be so bad if we were investing in *new* property -- that would at least give a boost to the building and related service industries -- but we're not. In places like Auckland, all we're doing is bidding up the value of existing property and thus tying up huge swathes of our very limited capital in inert, unproductive assets which become part of a ponzi scheme.

As a result, our productive sector is starved of funds. People nearer the bottom end of the economic ladder can no longer afford to buy houses. Consumption drops because rents are pushed up by hungry landlords seeking ever-more return on their "investments".

So who wins?

In the short term, those who are lucky enough to buy and sell at the right time win big.

In the medium term, the banks, for are able to loan immense amounts of money -- most of which is simply used to create an inflated property market.

In the long term -- nobody wins:

Huge swathes of those invested in property will suffer significant losses (as those invested in ponzi shares in the 1980s did) when the market collapses.

Banks will lose large chunks as the default rates on mortgages soar when negative equity becomes a real issue and falling incomes force the sale of mortgaged properties.

Everyone loses as the banks end up owning a massive portion of our property sector and, not wanting to suffer more losses than absolutely necessary, ramp up their fees to compensate for the losses experienced. This also creates a huge window (given existing laws) for buyers from outside NZ to step in and buy those bits of the country they don't already own.

But most sadly of all, this property bubble is robbing the young and the poor to line the pockets of the older and richer -- in the process, massively increasing the gap between rich and poor. Statistics prove that the wider that gap, the more problems we have with crime and other social issues.

Meanwhile, other countries, where people realise that it is more prudent to diversify your investment strategies, will be innovating, researching and developing new products, services and ideas so that by the time NZ finally wakes up to the self-inflicted tragedy it faces, we'll also be well on our way to becoming very much an "also ran" when it comes to competing on the world stage in our export markets.

The Chinese will all but own our dairy industry -- meaning that aside from a few labouring jobs on dairy farms and in milk-powder factories, all that value will be disappearing offshore with nothing left to show for it but long-term environmental damage (ie: cadmium levels in Waikato soils, methane emissions, etc). Australian banks will own much of our housing stock and they'll be more than willing to flick that off to the highest bidder -- regardless of where in the world they come from (a bit like Mangakino, the town which was sold almost in its entirety to one buyer).

As I've said for a long time now, our new catch-cry won't be "100% Pure NZ", it will be "NZ, the land of tenant serfs"

Hard to argue that this isn't a very likely scenario... isn't it?

Re: Why I am What I am...

PostPosted: Tue May 26, 2015 11:13 am
by Screw
Can't argue with that Bruce, it's true enough. The question is why is it happening? Not just here either, all over the western world too.

To answer that question is actually quite easy. It's because they and we have a Government not by the people for the people but by the rich for the rich, in Auckland the rich are generally Property Developers and Real Estate Agencies. Nowhere in the recorded history of humankind has making the rich richer ever improved the life of the poor or working classes. I used the analogy of the '29 Crash to explain how and why that happened. In the build up to it, there was this illusion of everyone getting richer but it was and still is a very fickle thing. The relatively recent French Revolution shows what happens when the balance of power is distorted on favour of the rich too. They get out of touch with the reality on the ground to their own detriment.

Supply and demand is a nice little theory but in reality it is too easily distorted by human greed. Those with power can and do distort the supply side which in turn, distorts the demand side. By limiting the housing in Auckland for example (restricting the supply), has pushed house prices to the sky, far beyond their real value = distortion! Successive Governments tinker around the edges to make it look like they are doing something but not really doing anything.

Another is un-employment, in a country with the resources that NZ has there is no reason for anyone to be un-employed, even those with disabilities, so why are they 140,000 people out of work here? Distortion on the supply side is why. The answer to that is easy to see if people would only open their eyes! The supply is distorted by restricting job opportunities for the largest pool of workers by the actions of big business and Government policies also including the actions of the Banking Systems. All of whom are colluding together ( a Cartel) to maintain the status quo. Strangely a Government needs un-employment to also make it look like they're doing something but are really doing nothing. All illusions!!

Education is important, the biggest asset to any country is a well-educated society but that is limited too, well educated people can see through the mirage so they must be kept just dumb enough to maintain power. Also supply and demand comes into effect again, to use another analogy; training all the un-employed to become IT geeks. Great in theory but stop for a moment and think about it. We would have 1400.000 un-employed IT geeks and those working in that industry would be on the minimum wage (supply and demand again). Not a likely scenario but it explains how the supply and demand can be distorted again.

No-one to date has been able to point out how the tax cuts for the rich here has created one new job. There has been none. So by increasing the burden on the poor has not improved the lot for anyone at the bottom. And it's not rocket science, the rich immediately shifted their gains off shore to other opportunities. So no work or jobs appeared for that. When John Key says he is not drawing a salary he is lying, he is compelled by law to have that salary paid into his bank account, what he does after that is up to him. Does he give it to charity, if so which charities are beneficiaries? He spends his time in a classy house in Wellington which paid for by the taxpayers (100% accommodation allowance) or flitting back to Hawaii to play golf with Bams. He has a small (5 bedroom two bathroom cottage on the hill above Helensville -his electorate), all paid for by NZ taxpayers. The list goes on amongst all of the Politicians of all the different persuasions too. Out of touch!

I'll get into how it can be fixed soon as I collate the rest of the posting.

Re: Why I am What I am...

PostPosted: Tue May 26, 2015 11:38 am
by aardvark_admin
You're right Screw and the key question is "how do we measure real wealth?"

The reality is that there is only so much wealth in the world.

All else being equal, if one person becomes richer then this mandates that another becomes poorer -- it's very simple.

When you buy a new car, you become (cash) poorer and the car-seller becomes (cash) richer.

The problem with measuring wealth by way of cash money is that it is a metric that is highly variable. The price of certain items goes up and the price of other items goes down -- cash is simply a method for trading values.

The *real* wealth of the world is measured in human capital -- the amount of someone else's work you can buy for your own work.

This is why lawyers and doctors are "rich" compared to cleaners and labourers. One unit of a lawyer's time will buy several (or more) units of a cleaner's time. Hence, a lawyer can pay for their day's cleaning with just a few minutes work but a cleaner must work for days or weeks to cover the cost of a visit to the lawyer.

Within the geographical confines of a nation, the wealth is fixed except for the gains/losses associated with exports and imports. NZ, as a nation is only worth x$ and no matter how you slice, dice or julienne that amount, it gets neither bigger nor smaller through intra-national trading or dealing.

The only way NZ can become wealthier is (casting your mind back to my earlier statement) to take money from some other nation by way of exporting products or services. Such a trade will make NZ richer and the other country poorer.

Expand this globally and you can see that the world is of a fixed financial value and no amount of inter-national trading can change that value. Countries that export more than they import (like China) become very rich. Countries that import more than they export (like Greece) become poor.

So we have a problem.... we can't make ourselves (as individuals or as a nation) richer without making someone else (or some other nation) poorer.

The only way therefore, to improve our standard of living is to hike our productivity. If a cleaner can clean more offices per hour by being more productive then they will earn more money per hour -- and that means less hours worked to pay for that lawyer I spoke of earlier.

So what do we do?

Do we accept that for *us* to become richer, some poor sod (right now it is most likely some impoverished worker in India or China) will be sweating long hours for little pay? Do we consider the further impoverishment of those who are already least able to support themselves an acceptable price to pay for our own improved wealth?

It is a very complex moral and ethical debate and one for which there is no "best answer". We do not live in an egalitarian world and perhaps nor should we. However, perhaps it's time to acknowledge that the very extremes of the scales of poverty and wealthy could be reigned in a little for the benefit of everyone. How do we do that? I have no bleeding idea ;-)

Re: Why I am What I am...

PostPosted: Tue May 26, 2015 12:09 pm
by phill
that would only happen if we used one world currency value
but as more money profit is made by buying and selling currency than producing goods the goods have no set value or the people that make them any set worth
personal solvency or insolvency can often be determined by how much the currency is selling for... so the same work can be enough ( solvency ) or latter the same day not enough to pay the bills ( insolvency )
last year nz dollar was almost 90us cents now it around 70 cents ..

Re: Why I am What I am...

PostPosted: Tue May 26, 2015 12:14 pm
by aardvark_admin
phill wrote:that would only happen if we used one world currency value

For all intents and purposes (in the world of international trade) we do use a single currency -- the USD.

Re: Why I am What I am...

PostPosted: Tue May 26, 2015 12:49 pm
by phill
and it now cost so many more work units ( your term ) to buy so many us dollars than it did a year or even a day ago
the final currency you use for the transaction is almost irrelevant if its not the one your work units are paid in