Economics is still lost

Written By: - Date published: 12:25 pm, September 20th, 2016 - 54 comments
Categories: capitalism, economy, monetary policy - Tags:

economicsnooneknows

Paul Romer is an economist highly respected by his peers, and about to become the Chief Economist at the World Bank.

He’s also just published a paper rubbishing the last 3 decades of macroeconomics.

Starting with “For more than three decades, macroeconomics has gone backwards”, Romer compares the belief that economies are only kicked out of ‘equilibrium’ by unpredictable external shocks to a kind of physics that only works if there are “trolls, gremlins and aether”.  The belief that monetary policy – Reserve Bank adjusting interest rates, or printing money – has no affect on the economy is clearly fantasy.

These attack have long been made by Steve Keen, but this is the soon-to-be Chief Economist at the World Bank, as I said.

So it’s time to junk these out-dated theories.  Romer proposes agent-based modelling – a kind of giant professional version of Sim City as the Guardian link puts it.  An economics that doesn’t assume we’re all perfectly informed and perfectly rational and only in pursuit of money, and models that as lots of pseudo-random decision by lots of ‘agent’ – virtual people.

economicsaboutmoney

Keen’s analysis, as economists all struggle with what caused the GFC & Great Recession, is that recession is caused by a collapse in debt-financed demand. The higher the level of private debt, relative to GDP, the more unstable the system becomes.  Which certainly chimes with the noughties experience.

Which leads some to question about our creation of that debt.  Is capitalism as inherently flawed as Piketty says?

Colin James had an excellent column a couple of weeks ago, looking at how long the policies of the 80s and 90s take to affect social mobility and cohesion, long after the shock to inequality.

He quotes:

The Financial Times’ eminent Martin Wolf, once a cheerleader for the financial practices that gave us the global financial crisis, last week asked: “Is the marriage between liberal democracy and global capitalism an enduring one?”

He went on: “Democracy is egalitarian. Capitalism is inegalitarian, at least in terms of outcomes.”

“Widely shared increases in real incomes played a vital part in legitimising capitalism and stabilising democracy.” But now there is a “poisonous brew” of “growing inequality and slowing productivity growth”.

Martin Wolf, in addition to now wanting to see redistribution (or predistribution?) of wealth and reduced inequality, is also keen for monetary policy changes, that would curtail the debt-fuelled boom-bust.

The idea that private banks shouldn’t create money, just the government, has been one that has struggled to gain traction among politicians and economists, even though most people assume that’s how our system works.  In fact, with fractional reserve banking, most of our money is created out of thin air by private banks for their own gain.  When governments do it, it’s “printing money” and crazy, but private companies doing it for their own wealth is just normal.

Those financial institutions with their fear-greed swings create the debt-fuelled boom-bust cycles.  Is it so mad that government (or more probably indirectly through the Reserve Bank) could in fact have complete control of money supply and create a small amount of money each year at a targeted rate of inflation, reducing the need for its own debt or taxes (or increasing supply of social needs)?

Economics is certainly in need of some new ideas, because our current settings aren’t working for society or the environment.

54 comments on “Economics is still lost”

  1. Guerilla Surgeon 1

    And none of these pricks who have managed to fuck over the world in the last 20 or 30 years will so much as blush. There won’t be any apologies for the people whose lives they ruined, and they will continue to be shoulder tapped for top jobs. Just goes to show, merit has fuck all influence on these people.

  2. Ad 2

    Great post.

    Needless to say, the dearth of fresh ideas in economics has affected the left more than the right.

    The long global stagnation we are going through now doesn’t have many good economic rationales either.

  3. Henry Filth 3

    Economics is akin to botany – a descriptive occupation. It’s practitioners are somewhat like Joseph Banks, busy describing what they see, but completely unable to explain it.

    It took centuries for the modern “active” biological sciences to emerge. Why should economics be different?

    Fortunately, there are enough economists available to act as a useful source of fuel in winter.

    • UncookedSelachimorpha 3.1

      Botany is actually quite useful.

      • Colonial Viper 3.1.1

        *Extremely* useful.

        Economics is akin to botany – a descriptive occupation. It’s practitioners are somewhat like Joseph Banks, busy describing what they see, but completely unable to explain it.

        Modern economics does nothing to describe what it sees; the discipline is too busy forcing reality into their own contorted fictional models of the world.

        • UncookedSelachimorpha 3.1.1.1

          Agree, it is hard to tell the difference between blind ideology and much of modern economics, because there isn’t a difference. You just believe, evidence doesn’t matter – Neoliberalism is merely a religion.

          But it would be wrong to taint all economic study – there are some economists who actually have something considered to say, e.g. Piketty is an economist.

          • Colonial Viper 3.1.1.1.1

            I quite like Richard Wolffe, who is a Marxian economist. Also the field of thermodynamic economics is worth following. Economics connected to the rules of the real world, imagine that.

  4. Anno1701 4

    “Fortunately, there are enough economists available to act as a useful source of fuel in winter.”

    lol

    fastest way to remove an economist from his position ?

    Straight out the window….

    • Henry Filth 4.1

      The ratepayers might complain about the need for constant traits ti the impact-damaged footpaths.

  5. Pat 5

    that brief outline all makes sense…..but suspect it still will rely on real terms growth (sadly)

  6. Editractor 6

    “An economics that doesn’t assume we’re all perfectly informed and perfectly rational and only in pursuit of money, and models that as lots of pseudo-random decision by lots of ‘agent’”

    Which might be fine so long as there isn’t also manipulation of the systems by the big players (e.g., FX manipulation by big banks). I wonder if he is going to model that as well.

    When top graduates miss out on banking jobs for lack of ‘polish’ in the UK ( https://www.theguardian.com/society/2016/sep/01/top-graduates-missing-out-on-banking-jobs-for-lacking-polish ) the obvious conclusion is that the system prefers people who are in service to it rather than really smart people who might not be. In this case, are their lots of pseudo-random decisions by lots of agents?

  7. vto 7

    Well it needs repeating….

    always follow the hippies.

    the hippies have been saying such for decades.

    the conservatives on the other hand….. useless… and only ever followers. Never look to a conservative party for new ideas, let alone critical thinking. The conservatives (National Party) will eventually get in behind this stuff, as they always do

    just such a shame that conservatives have so much power in society – they are a deadweight, like the ballast in a ship

    see also /when-the-levee-breaks/#comment-1233889

  8. Jones 8

    Great post… I’ve always liked Satyajit Das’ quip that “economists were put on this Earth to make astrologers look good”.

  9. thechangeling 9

    I seem to remember a certain economics lecturer at Massey University telling students there was only only one economic theory namely Neo Classical Economics, which we all know is total B.S.
    He should be removed from Massey because his denouncing of and refusal to teach alternative economic theories means he is either truly deluded or has some kind of ulterior motive, association, pecuniary or vested interest in maintaining the status quo.

    • Draco T Bastard 9.1

      I seem to remember a certain economics lecturer at Massey University telling students there was only only one economic theory namely Neo Classical Economics, which we all know is total B.S.

      The economics lecturers I had at uni were pretty much the same. They simply could not believe that they were wrong about it all.

  10. Brigid 10

    I seem to remember a political party whose main policy was to put the creation of money into the hands of the reserve bank.
    But that was called funny money.
    I suspect the banks who did control the creation of money thought that was hilariously funny.

  11. Draco T Bastard 11

    Is capitalism as inherently flawed as Piketty says?

    It’s probably worse. Every capitalists type society throughout recorded history has collapsed due to the over use of resources and the hubris of the rich.

    Is the marriage between liberal democracy and global capitalism an enduring one?

    Capitalism and democracy are diametrically opposed. After all, capitalists are inherently dictators and democracy is inherently communist.

    Is it so mad that government (or more probably indirectly through the Reserve Bank) could in fact have complete control of money supply and create a small amount of money each year at a targeted rate of inflation, reducing the need for its own debt or taxes (or increasing supply of social needs)?

    No, it’s not mad. In fact, that’s pretty much how it should be. What we have is mad but it keeps the greedy psychopaths rich and in control and that is why it’s not only allowed but hidden from the people.

    Of course, it’s not as well hidden any more and what we’re really dealing with now is disbelief that the rich have been stealing from us and causing poverty for centuries.

    Economics is certainly in need of some new ideas, because our current settings aren’t working for society or the environment.

    Economics has been a tool of the rich for the last two centuries to justify their greed and theft.

    • The lost sheep 11.1

      Sorry, I followed the links, but still can’t see what ‘agent-based modelling – a kind of giant professional version of Sim City; actually is?
      It just leads to this.. https://www.onlydomains.com/?utm_medium=free_parking&utm_source=crisis-economics.eu

      So Ben, can you direct me to a better link for the alternative model of economics that is being proposed?

      • Draco T Bastard 11.1.1

        My wish for 2015: a machine to judge political claims against reality

        Farmer is a proponent of so-called “agent based” modelling: instead of a bunch of equations, you create a computer model of the economy where millions of consumers, businesses, bankers and central bankers actually exist. They interact spontaneously, like non-player characters in a computer game, producing unexpected high-level trends and even shocks. The method is in its infancy in economics, but the Bank of England, for example, has sponsored work on an agent-based model of European economy and finance system.

        That was easy. All I had to do was follow the first link

        The agent-based model, instead of reducing reality to a few variables, tries to replicate reality – and its randomness – in detail. Such models are common in weather prediction, or city transport planning: think of them as a professional version of the computer game Sim City. In an agent-based model, you don’t try to work out whether a million people will, on aggregate, buy more bread or less bread. You create a million digital “people” and unleash them in world with digital bread and digital money.

        It seems to be the revolutionary idea of applying reality to economics. Something that the economists (and RWNJs) haven’t ever done before.

        • Pat 11.1.1.1

          unfortunately with so many variables the number of possible outcomes would be almost infinite ….so is it modelling at all?

        • The lost sheep 11.1.1.2

          That was easy. All I had to do was follow the first link
          No. That link just discusses what is wrong with the current model.

          If you then follow the link…..‘has long advocated the adoption of agent-based modelling in economics’
          You get to this..
          http://www.inet.ox.ac.uk/projects/view/158
          and if you follow the link on that page…you get to this
          http://www.crisis-economics.eu/

          So that’s all nothing then?

          Where is the actual alternative that is being proposed?

          • Draco T Bastard 11.1.1.2.1

            They’re developing it.

            • The lost sheep 11.1.1.2.1.1

              Same old same old then. Capitalism is the worst possible system, but no one can put forward a coherent alternative.

              Like you can’t describe how your non-hierarchical egalitarian society would work Draco.

              • RedLogix

                I agree that capitalism is very effective at selecting for, amplifying and rewarding certain aspects of human behaviour; the drive for wealth, power, status and drama.

                I would ask, do you think these are the only behaviours humans are capable of, are there other ways we can behave, and can we imagine alternative economic models based on these?

                • The lost sheep

                  I would ask, do you think these are the only behaviors humans are capable of, are there other ways we can behave, and can we imagine alternative economic models based on these?

                  Obviously they are not the only behaviors humans are capable of, but they are behaviors that humans have been displaying consistently where ever societies have got above subsistence and created wealth.
                  So I see no evidence at all that humans will cease those behaviors you name, any more than I can see Humans ceasing to lust or love or hate or explore or create. I don’t imagine that Cats are going to turn vegetarian either.

                  So if you propose an economic model that is predicated on core elements of Human nature changing, then I would ask you for evidence that it is possible for that to happen, and I would say that without it happening, then your proposed model is doomed to fail. (That is exactly why the Socialist / Communist experiments of the 20th Century failed.)

                  That is why Capitalism ‘succeeds’, in all it’s imperfection. It accommodates all the aspects of Human nature/behavior well enough to allow co-ordination and progress on a vast scale. Yes, with all the imperfections.

                  I can’t imagine core human nature changing hugely, but I think it is evolving steadily, and to that extent I can imagine that we could fit human behavior into different economic models.
                  I can certainly see it being possible to evolve the current system into a different state, and I believe that is actually occurring at quite a rapid rate.
                  But for an ‘alternative model’ altogether? I’ve been thinking about that constantly since I gave up on Communism back in the late ’60’s and Socialism in the early ’80’s, and for myself I still can’t see a coherent alternative to some variation on the current model, and I still haven’t seen anyone else propose one that looked even vaguely realistic.

                  Do you have one?

                  • Incognito

                    @ The lost sheep and also Draco T Bastard & RedLogix:

                    Great discussion!

                    Arguably, capitalism (and neo-liberalism) rewards or accommodates (whatever that means) certain (or all?) aspects of human behaviour well and this is the reason why it has taken such a strong hold.

                    Reward and behaviour have always gone hand-in-hand, so to speak, and this played [note the past tense] a very important biological/evolutionary role.

                    Capitalism has largely uncoupled this (like a cancer) – I don’t know whether this is a ‘design flaw’ or a ‘bad reaction’ that just happened – and although we get rewarded by our material achievements and successes it is not the ‘real thing’, biologically speaking. For example, it is not equal to the rewards of loving and being loved, of belonging, of being part of something bigger/larger, etc. (cue: Maslow).

                    This uncoupling has led to futile cycling, to repetitive and compulsive behaviour, to greed, mindless vandalism & violence and worse. Drug abuse, for example, fits perfectly into this picture too: it is another form of ‘reward’ and it can also mask the soul-destroying and tortuous emptiness that is, on the one hand, caused by cold-hearted capitalism and, on the other hand, will never be filled or satisfied by capitalism per se or neo-liberalism.

                    Capitalism was perhaps originally conceived as a means-to-an-end, but it has become an end in its own right. In my view, capitalism has no direct psychological/spiritual benefits and it is synonymous with materialism.

                    The above is possibly highly contentious, but there it is; too many words already, again, sigh …

                    • The lost sheep

                      I agree that modern capitalist societies contain the negative factors you discuss above Incognito, but I disagree completely they are characterised by them. I’ve been around a long time and in my experience the great majority of people are living rewarding lives that are not characterised by emptiness and destructive behavior. Most people actually do live in situations where family and friends and social contact and engagement is the dominant factor, and they perceive their life satisfaction to be far more positive than negative.
                      Check this, http://worldhappiness.report/, and note the correlation between well developed democratic capitalist countries and how people rate their lives. Note also the correlation between the other end of the scale and countries that remain largely in a pre-capitalist state….

                      But the imperfections yes, they are definitely there. Whether they are due to Capitalism directly, or are simply an inherent human response to a situation of wealth….that’s another discussion.
                      Crucially, Democratic Capitalism was not ‘conceived or planned’, it evolved as it is because it is actually a reflection of the human condition, and it ‘succeeds’ and is dominant because it accommodates actual human behavior.

                      Do you see an alternative model that would work for Humanity Incognito?

                  • Draco T Bastard

                    So if you propose an economic model that is predicated on core elements of Human nature changing,

                    How about evidence that the core elements of human nature aren’t what you think they are?

                    A study by the Common Cause Foundation, due to be published next month, reveals two transformative findings. The first is that a large majority of the 1,000 people they surveyed – 74% – identifies more strongly with unselfish values than with selfish values. This means that they are more interested in helpfulness, honesty, forgiveness and justice than in money, fame, status and power. The second is that a similar majority – 78% – believes others to be more selfish than they really are. In other words, we have made a terrible mistake about other people’s minds.

                    It’s really only the sociopaths that behave the way that you think everyone behaves and they’re a distinct minority. We need to stop catering to them rather than raising them up and celebrating them as heroes.

                    That is why Capitalism ‘succeeds’, in all it’s imperfection.

                    That’s just it – it doesn’t succeed. It always destroys the society that it arises in as shown throughout recorded history.

                    • The lost sheep

                      I agree completely with the article. Please note I have not said at any stage that I think that ‘selfish’ or other so-called negative values are the dominant characteristics of human nature Draco. As i make very clear in my comment to Incognito below.

                      You have made the assumption that, because I say that ‘selfishness / greed / etc’ are core components of humanity (even if just 25%), that I am implying Humanity as a whole is ‘bad’.
                      I’m not. I think it is overwhelmingly good. And here’s the kicker, I think that modern democratic capitalist societies probably express ‘good’ more than any other large scale societies that have ever existed.
                      It is you who thinks current society is overwhelmingly ‘corrupt’, not me.

                      The 25% is there, and Humanity has not evolved to this proportion of ‘selfless’ to ‘selfish’ by co-incidence. The selfish are necessary. They drive change in different ways that provide an overall benefit to societies. If they didn’t, evolution would have favoured societies that contained higher proportions of ‘selfless’ types. It hasn’t. 75/25 must be about optimum.

                      This is an inbuilt genetic factor Draco. You cannot artificially eliminate it. You could wipe all the ‘selfish’ individuals out of this generation (you have suggested that, but think about it a minute…), but exactly the same proportion would arise in the next generation.

                      So any proposed model for human society that is predicated on all humans becoming exactly the same in their degree of selflessness is going to fail. Nor are you going to be able to suppress 25% of people (think about it again…). It is simply not going to happen.
                      As I have pointed out, that is why no one can propose a coherent alternative model to Democratic Capitalism. For the model to work it has to encompass ALL of humanity.

                    • Draco T Bastard

                      Please note I have not said at any stage that I think that ‘selfish’ or other so-called negative values are the dominant characteristics of human nature Draco.

                      Actually, you have by insisting that the only way for society to operate is through a capitalist system which is a system based around the idea that everyone is a selfish arse-hole.

                      You have made the assumption that, because I say that ‘selfishness / greed / etc’ are core components of humanity (even if just 25%), that I am implying Humanity as a whole is ‘bad’.

                      That would be because that’s actually what it means.

                      The 25% is there, and Humanity has not evolved to this proportion of ‘selfless’ to ‘selfish’ by co-incidence. The selfish are necessary. They drive change in different ways that provide an overall benefit to societies. If they didn’t, evolution would have favoured societies that contained higher proportions of ‘selfless’ types. It hasn’t.

                      That assumes that it’s only genetics that moulds peoples behaviour and not environment which is simply wrong.

                      David Moore: For the longest time, the nature-nurture debate has been cast as a kind of contest between genes and experiences. The thought was that we might have some characteristics that are caused primarily by genetic factors and other characteristics that are caused primarily by experiential factors. What epigenetics is making clear is that’s a faulty way to think about the situation, because it’s not true that genes do things independently of their contexts. Instead, genes do what they do because of the contexts that they’re in. Nature and nurture are always working together to produce all of our traits.

                      As I say, we need to change the culture away from the capitalist greed system.

                      So any proposed model for human society that is predicated on all humans becoming exactly the same in their degree of selflessness is going to fail.

                      It’s been observed for many years that when people simply have enough that altruism and selflessness spike higher. It’s the people with more that get greedy. Basically, make sure that everyone has enough but no one has excess and they have no way of getting excess.

                    • The lost sheep

                      The same way as the hunter-gatherers did…..
                      It’s just a matter of scaling it up.

                      It’s ‘just’ a matter of thinking about the difference between 10 people discussing a single task, and 1000 people trying to co-ordinate multiple different tasks, or a society of 4 million attempting to co-ordinate millions of tasks.
                      It doesn’t ‘just’ scale up. It would be fabulously inefficient, as far too many people would be spending their time having discussions and making decisions that far fewer people could achieve….and so the total amount of constructive achievement would be far less than if the decision making process was streamlined.

                      That’s why you can only point to Hunter gatherers and Loomio as evidence for egalitarian consensual decision making , while I am pointing out the entire post subsistence history of Humanity as evidence for hierarchical organisation ….

                      But apologies Draco, enjoyable though it is, this discussion has eaten into the time I should be doing stuff to help keep a large and complex organisation running smoothly, and so I’m going to have to pass on further comment for now.

                    • Draco T Bastard

                      It doesn’t ‘just’ scale up. It would be fabulously inefficient, as far too many people would be spending their time having discussions and making decisions that far fewer people could achieve….and so the total amount of constructive achievement would be far less than if the decision making process was streamlined.

                      It can be made to scale up – that’s what tools like Loomio are for. Yes, it starts small but over time will evolve.

                      And efficiency isn’t the hallmark of good governance as dictatorships throughout history have shown. They all efficiently oppressed their people and eventually destroyed their societies. Just as capitalism is doing now.

                      while I am pointing out the entire post subsistence history of Humanity as evidence for hierarchical organisation ….

                      No, you’re demanding that things stay the same rather than evolve.

              • Draco T Bastard

                Except that I have. Multiple times. It focusses around democracy, cooperation and structure/culture. It is a huge change and no one person is going to have all the answers (unlike a few RWNJs that I’ve known I don’t think that I’m omniscient). I tend to think that it would evolve over time one we’ve started on that path.

                And, no, it hasn’t been proven that an egalitarian society can’t develop past subsistence and, more importantly, it hasn’t been proven that an hierarchical society that’s already past subsistence can’t be made better by moving to egalitarianism. In fact, that’s pretty much what happened after WWII in NZ and the rest of the West under social-democracy and it’s been getting worse ever since we went back to more hierarchical and unequal society. The problem seems, IMO, that we went backwards towards outright feudalism rather than forwards to an even more equal society.

                • The lost sheep

                  Except that I have. Multiple times. It focusses around democracy, cooperation and structure/culture. It is a huge change and no one person is going to have all the answers. I tend to think that it would evolve over time one we’ve started on that path.

                  What if I said to you I have an idea for a limitless energy machine, and I want you to invest everything you have so I can build it. And naturally, you then asked me how exactly this would work and how certain you could be you weren’t just going to lose everything? And I told you it focuses around molecules, and magnetism, and gravity, but as yet I don’t have much more definition than that, and I’m thinking the answers will evolve over time once I’ve started on the path. With your money.
                  You buying in?

                  So you seem to me to be expecting ‘the people’ should ‘invest’ in your ideas – but these are ideas that are clearly generating little in the way of ‘buy in’ from the people. I say that’s for the same reason you are not going to give me everything you own for me to develop my machine. There simply isn’t anything like enough detail to be able to say whether it will work or not.

                  So when you say ‘Democracy’. Does that mean 1 person 1 vote? If so, do you not then retain the tyranny of the majority, as present?

                  Co-operation? Is this going to be voluntary and based on the assumption everyone will completely sacrifice their own self interest in the interest of the greater good? Will there never be any dispute over what is the greater good? Will no one ever seek to create a position that is favorable to them at a cost to someone else? How do you resolve such issues if they arise?

                  Structure / Culture? What structure do you propose? How will you maintain something as complex as a National Medical System or Relations with other countries or Law?…..

                  • Draco T Bastard

                    What if I said to you I have an idea for a limitless energy machine, and I want you to invest everything you have so I can build it. And naturally, you then asked me how exactly this would work and how certain you could be you weren’t just going to lose everything? And I told you it focuses around molecules, and magnetism, and gravity, but as yet I don’t have much more definition than that, and I’m thinking the answers will evolve over time once I’ve started on the path. With your money.

                    I haven’t done anything like that though. I’ve detailed quite a bit about a UBI, sovereign money, cashless society, the need to use our resources sustainably and a whole lot more.

                    You’re just going round telling the lie that I haven’t done these things.

                    So when you say ‘Democracy’. Does that mean 1 person 1 vote? If so, do you not then retain the tyranny of the majority, as present?

                    One person, one vote.
                    There is no such thing as the tyranny of the majority. That is simply a lie of the capitalists to create fear and doubt in the people so as to protect their privilege.
                    And ATM we have an oligarchy, a plutocracy. Rule by the rich and that truly is a tyranny.

                    Is this going to be voluntary and based on the assumption everyone will completely sacrifice their own self interest in the interest of the greater good?

                    Cooperation has never required people to sacrifice themselves – that’s capitalism and competition.

                    Will there never be any dispute over what is the greater good?
                    Of course there will. That’s what brings out and tests the good ideas.

                    Will no one ever seek to create a position that is favorable to them at a cost to someone else? How do you resolve such issues if they arise?

                    Of course they will, there’s no way we’re getting rid of the sociopaths. That said, we put in place processes and regulation that prevent such from rising to positions of power. Mostly, of course, by getting rid of positions of power.

                    What structure do you propose?

                    A democratic one, one where people have a say in the policies that are enacted.

                    How will you maintain something as complex as a National Medical System or Relations with other countries or Law?

                    Through the people working in them telling the rest of us what they need to do their jobs and then the rest of us deciding how we will provide them with those needed resources.

                    • The lost sheep

                      i>One person, one vote
                      A democratic one, one where people have a say in the policies that are enacted
                      we put in place processes and regulation that prevent such from rising to positions of power. Mostly, of course, by getting rid of positions of power.

                      So you must then have some kind of structure that decides what gets voted on, how the votes are made, who verifies them, etc etc.
                      What does your democratic structure look for a Country the size of NZ Draco?

                      Under your system do people have the freedom to form a political party and advocate changes to the structure of society, and if they can get 51% of the people supporting them the changes will take place?

                      How will you maintain something as complex as a National Medical System or Relations with other countries or Law?

                      Through the people working in them telling the rest of us what they need to do their jobs and then the rest of us deciding how we will provide them with those needed resources.

                      I can see how that works in a hunter gatherer band Draco, but how exactly does that work for something as incredibly complex as modern society?
                      The ‘People working telling the rest of us what they need’ could not possibly work on an individual level, it would need to be co-ordinated to a very high degree, which must lead to a organisational structure which is co-ordinated from an individual through to a nationwide level across all the many separate entities involved. Very similar to what we have today in fact.
                      The same would apply to most aspects of your society such as Industry, Education, Basic infrastructure such as power / transport, etc etc etc.

                      Explain how you see that working in your society, and how we would transition there from the current situation?

                    • Draco T Bastard

                      I can see how that works in a hunter gatherer band Draco, but how exactly does that work for something as incredibly complex as modern society?

                      The same way as the hunter-gatherers did.
                      By ensuring that everyone has knowledge to the actual physical resources that are sustainably available to the nation and getting them to decide where those resources are going to be used. Before they click their decision (online voting) they’re informed about what effects, if any, upon other aspects of society.

                      The ‘People working telling the rest of us what they need’ could not possibly work on an individual level, it would need to be co-ordinated to a very high degree, which must lead to a organisational structure which is co-ordinated from an individual through to a nationwide level across all the many separate entities involved.

                      No, it doesn’t need to be coordinated through an individual. Cooperatives work very well and such decision making is why loomio was created. In fact, the company that developed that idea is a cooperative that uses Loomio in their own decision making along with another called Cobudget.

                      See, the basic idea is already in use and working. It would need to be scaled up for an entire nation but that’s just natural evolution.

                      So, a hospital would be a cooperative with the people working there gathering the stats and then making a consensus decision of what they need to do their job effectively and efficiently from those stats. That information would then be made available to the general populace who would then decide how to get those resources to them.

                      Please note, I’m actually talking resources here and not money. Money, in the long run, would be removed.

                      This would be the same for everything that we use.

                      Under your system do people have the freedom to form a political party and advocate changes to the structure of society, and if they can get 51% of the people supporting them the changes will take place?

                      Of course but it won’t be the political party that makes the decision but all of the individuals voting separately.

                      I actually see the death of political parties as they would no longer have the power that they have now as we would no longer be governed by ‘representatives’ but by ourselves.

                      Of course, part of that is the cultural change to voting being a duty that everyone must do rather than a right. I do note that the RWNJs truly hate that idea despite their proclivity to claim that everyone needs to take personal responsibility.

                • ropata

                  From my vague recollections on the topic, Western style commerce relies on a cultural foundation of honesty and fair dealing. The Reformation, Renaissance, and birth of democracy enabled the middle class to share the wealth that was previously hoarded by the elites. The Brits picked up the model of the Dutch (East India Trading Company) and built an Empire.

                  The new aristocracy is about to (re)learn the lessons of history, the hard way

      • Incognito 11.1.2

        Nassim Nicholas Taleb argues that agent-based modelling will fail as badly as any other methodology to make predictions.

        http://www.economist.com/news/21566446-world-finance-needs-four-new-rules-says-nassim-nicholas-taleb-professor-risk-engineering

        Enjoy!

  12. Nic the NZer 12

    The idea that inflation is a monetary phenomenon is badly flawed. This is the basic monetarist thinking which got the whole neo-liberal era started (and at that time inflation was high and considered a real problem). There is no direct link between the size of the money supply and the inflation rate and the kind of economic models criticized in this same article often assume such a link to begin with. If the conclusion is a need to ‘abolish commercial bank money’ you are no longer criticizing such modelling and its failures but trying to make in work in reality (not that it can possibly do so).

    Should also point out that its an overwhelming faith in monetary policy which is a fault of mainstream economics, not at all what is summed up by the sentence,
    “The belief that monetary policy – Reserve Bank adjusting interest rates, or printing money – has no affect on the economy is clearly fantasy.”
    Monetary policy is mainstream economics go-to policy for regulating the economy in fact and it is believed that monetary policy changes can always return a recessed economy to full employment.

    However monetary policy is relatively ineffective compared to fiscal policy (govt spending, often with an increase in the govt deficit) which is typically the better policy tool but not preferred by the mainstream economists. In order to bolster this theory there are economic models which simulate that fiscal policy has no effect on the economy based on an idea called Ricardian Equivalence. This may be what Ben is getting at because the idea behind Ricardian Equivalence is pure nonsense in practice. The idea is that if the govt commits to spending now then the economy will respond not by spending, but by stringently increasing saving to pay for future (apparently inevitable) taxes in the future, and if the govt increases taxes then the economy will respond to this loss of income by increasing their spending and cutting back saving. As I said in practice this is pure nonsense, but that is the state of it.

    • Colonial Viper 12.1

      And half the self-styled lefties believe in this junk economics and think the country should be run with it.

    • Nic the NZer 12.2

      I think the statement that commercial bank money should not be abolished needs some further detail. The actual way that banks function is not well described by ‘fractional reserve’ banking which is the mainstream economic theory model of banking. With fractional reserve banking the central bank controls the size of the money supply by regulating a fixed reserve ratio. In practice lack of reserves is never a constraint on bank lending and to boot countries like NZ don’t even have a reserve ratio.

      The reserve bank in NZ is ready to lend as many reserves to commercial banks as they desire at the official cash rate. It does this so that they can make payments on behalf of depositors and borrowers. This constraint does not change under full reserve banking. All that changes is the inbuilt price of credit of the banking system.

      The model of banking which reflects reality is that banks lend first and look for reserves later. We need economic theory and models which reflect reality and not further attempts to have reality reflect economic models.

  13. RedLogix 13

    Outstanding loans have reached $28 trillion, as much as the commercial banking systems of the US and Japan combined. The scale is enough to threaten a worldwide shock if China ever loses control.

    http://www.telegraph.co.uk/business/2016/09/18/bis-flashes-red-alert-for-a-banking-crisis-in-china/

    That’s more or less 50% of global GDP!!! Just in case any of you were wondering where all those suitcases of cash being laundered in the Auckland property market were coming from.

    • Colonial Viper 13.1

      Now, imagine if some of Europe’s biggest and most insolvent banks’ multi-trillion dollar derivatives portfolios depend on the performance of the Chinese banking sector…

  14. ropata 14

    Yep there are plenty of economists churning out rubbish, Nobel laureates among them, shilling for the 1%
    http://www.counterpunch.org/2016/09/20/celebrating-the-one-percent-is-inequality-really-good-for-the-economy/

    The Debate Is Over: Banking Has Become a Criminal Enterprise in the U.S.~
    http://wallstreetonparade.com/2016/09/the-debate-is-over-banking-has-become-a-criminal-enterprise-in-the-u-s/

    • RedLogix 14.1

      Ah you beat me to the ‘punch’ with that first link ropata, but your second linky is a doozy:

      Tomorrow the U.S. Senate Banking Committee will hold a hearing to take testimony from Wells Fargo CEO John Stumpf and Federal regulators to understand how this mega bank was able to get away with opening more than two million fake customer accounts over a span of years. The accounts and/or credit cards were never authorized by the customer and were opened solely by employees to meet sales quotas, get bonuses or to avoid getting fired for failing to meet sales targets.

      The only reason the Republican-controlled Senate is holding this hearing is because the Wells Fargo fake-account story got a lot of coverage in the media when the Consumer Financial Protection Bureau (CFPB) announced a $185 million settlement over the charges on September 8. The reason the story got a lot of media coverage is because it’s a simple story to tell: widely respected bank opens two million accounts for its customers without their knowledge or permission, sometimes illegally funneling money to the new account from the old account to generate fees.

      The core purpose of a bank is to act as a trusted bookkeeper of credit transactions between real world parties. Blow that credibility and it’s game over.

      • ropata 14.1.1

        So you follow @ProfSteveKeen on twitter too? (that’s where I got the first link). The second link came via @CrowdvBank.

        Also worth a look: @economicsNZ , @WJRosenbergCTU , @Renegade_Inc

        • RedLogix 14.1.1.1

          Oh I’m the original Steve Keen fanboy around here. Going back yonks.

          Met him about three and half years ago when he visited in Wellington and gave a seminar. If the search function here was working I’d link to the post I did on it.

          When he’s lecturing it’s like standing under an intellectual fire hose, and in the media he’s an absolute attention whore, but one on one he exudes a quiet, almost shy demeanor. We chatted for 10 min or so. He’s the kind of person whose whole life is about ideas; yet far more than most he has the courage to put himself out there to breath life into them.

          Only history will judge Steve right or wrong, but he IS a remarkable character. One I admire a lot.

      • ropata 14.1.2

        To your comment, this is uncharted territory, US government & law enforcement failed to deal with Wall Street’s endemic corruption, the rot has continued to spread. The case cited in the article is the tip of the iceberg.

        This will be an interesting experiment on how long a modern economy, based on systemic fraud, can continue to function.

  15. Incognito 15

    As it so happens today there appeared a post on Sciblogs from the Morgan Foundation’s Jess Berentson-Shaw and Geoff Simmons exploring the legacy of the myth of the rational human – Homo economicus.

    The short Bio’s at the end are worth a read too IMO as are the three comments so far.

    Is homo economicus extinct?

    http://sciblogs.co.nz/guestwork/2016/09/21/homo-economicus-extinct/

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