If it is broke, then fix it

Written By: - Date published: 11:29 am, September 26th, 2012 - 71 comments
Categories: Economy, political parties - Tags:

I have been reading Colin James writing on politics for decades because he spends less time pushing his opinion and more about presenting the stories about the topics of the day. I get more actual new thinking from his political articles than I do from almost any other political columnist around. This week’s column has a good look at the increasingly strange contortions by the world’s central banks.

Last Wednesday, John Key invited Winston Peters to read the books that say nothing can be done about the high exchange rate. If Mr Key was keener on reading than he has shown in the case of John Banks’ damning police report, he might find there are now also books challenging the orthodoxy he is wedded to.

These challenges are no longer a fringe activity. Some big names and brains are seriously positing alternatives. While that doesn’t yet tell us the shape of the next orthodoxy, the old one is no longer securely orthodox.

When circumstances changed in the early 1970s the Keynesian orthodoxy frayed. After some debate, the Friedman orthodoxy triumphed.

Over the years I have been a strong proponent of a lot of the ‘orthodoxy’ of the central banks concentrating on controlling inflation. Anyone who was involved in running a business during the hell of double digit inflation, loan shark interest rates, and the outright weirdness of the previous orthodoxy that Robert Muldoon’s National government hung on to was. In my case my parents were managers in manufacturing companies and I was being trained as a manager in a local corporate after leaving university in 1981. So I saw it mostly from a business perspective – that was watching the work of many decades going down the toilet because National wanted to operate as if the world was still in the 1950’s.

Muldoon hanging on to the past dragged us through business and economic hell in the late 70’s and early 80’s. After I’d done a MBA in 1985-6 (I was intending to flee Muldoon’s economic madness and I wasn’t expecting Labour to be much better), I heard the same stories from the many businesses I came into touch with.

Despite what many commenting (and authors) on this site often seem to think, there was widespread political support for economic reforms of the late 1980’s including from Labour supporters like myself. It was not because of any particular adherence to the economic model. It was because any economic model change was better than letting National screw the economy up by adhering mindlessly to an old economic orthodoxy. Surprise – it is nearly 30 years later and I see John Key’d government doing the same stupid thing again. It is National’s thing – they destroy our economy looking blindly backwards.

But that was then and this now. Now it is clear that the economic orthodoxy that we and the rest of the world has adopted since the 1970s has also run it’s course. As Colin James puts it…

This is not just a hindsight view. By the mid-2000s a number of commentators worried about asset prices. I relayed this in a column in January 2006.

Now central banks – supposed to epitomise the straight and narrow – print money like 17th century monarchs. The United States Federal Reserve this month opened the floodgates.

Brazil’s Finance Minister Guido Mantega declared this debasing of the United States dollar a currency war which could have “disastrous consequences” for the rest of the world. Financial Times columnist Gillian Tett said that far from lifting United States producers and consumers off their sickbeds, with each new round of Dr Bernanke’s “quantitative easing” (QE), “expectations and fears are being racheted up”, discouraging investment.

Our central bank can’t do much about Dr Bernanke’s currency war on us. On Thursday, Japan’s central bank announced $US125 billion-$US1000 billion ($NZ152 billion-$NZ1214 billion) of QE.

The yen went down a bit – for just a few hours.

Quite simply the stupid shit that the reserve banks are doing offshore to try and kick start their respective economies is as scary as hell to anyone who has read the history of policy changes around the depressions on the late 19th and early 20th centuries. Like Nationals usual courses of action, most of this crap has been tried before and failed. Moreover that was in the days of passenger ships, expensive telegraphs, businesspeople who seldom travelled to other markets, and an ill-educated market. It is kind of different when expectations of the policy changes are figured out, arbitraged against, and stuffed in as trading policies on competing computer systems within days or even hours.

The economic effects are usually minimal. Unless of course you have a government that doesn’t think much and keep on operating like it was when they were young men. A lot like John Key and his cabinet for instance… That almost screams to anyone in the market that here is a nice juicy target to pillage. These days it mostly means that we’re going to lose a lot more jobs as the exchanges rates kill simple commodity exports and the jobs associated directly and indirectly with them.

It doesn’t make that much difference where we put in the intellectual property and specialised processing that operate in the hitech export markets I work in. But sadly National have essentially killed most of the new companies getting off the dreamers table these days by withdrawing almost all of the relatively cheap supports that startups used to get from idea to customer in their niche world market.

The only thing worse is to read the rationalisations of some of the ‘orthodox’ thinkers about what they should try next. I keep wanting to cry out “for gods sake the f**king system broke and doesn’t work that way any more. Accept that now and just rebuild it with a better model!”

Pushed by a lack of electoral success, the Fabians and some economists over the last 4 years. And with a certain amount of bracking from authors here. we’re now starting to see Labour looking at doing just that in NZ. Colin James points out some examples in the Labour caucus and leadership, and I suspect that they will figure out something more coherent than their mishmash of policies in 2011 and points out the short-term problem – it isn’t as sexy as titillating with bullshit stories and being critical using the tools of old orthodoxies – which appears to be all that John Key is capable of doing.

In sum, Labour is starting to lay some foundations for a more coherent policy than in 2011. And among interest groups there is a growing openness to its counter-propositions to the orthodoxy Mr Key reveres.
But watch Mr Key comfortably batting away the Banks embarrassment with a story he has internalised to the point where it has become for him a reality. That characteristic, which may be a legacy of being odd-boy-out in a state house enclave, gives him the powerful presentational strength of conviction.

Conviction-Key can keep the old orthodoxy breathing a bit longer. Book-reading David Shearer’s subtleties, nuances and counterpoints accurately reflect the argumentative phase of the transition to the yet-to-be-defined next orthodoxy. But that isn’t strong politics. A bookie would say: advantage Mr Key – for now.

And I’d add that there will eventually exist the problem common to Labour politicians. They have a tendency to view a good tool as being like a new crescent spanner. Rather than hunting for the appropriate tool for a specific task, they’ll use the damn thing on everything ignoring all of their newly rounded, worn, unusable, and upset nuts. Another round of simple minded gits like Rodger Douglas and his cohort waving their only tool around were gets to be almost as bad as watching National politicians sticking their head in the sand to avoid learning too much.

71 comments on “If it is broke, then fix it”

  1. Lanthanide 1

    Time to start using Key’s “financial wizard” background against him? He made his money being a currency trader in the 80’s and 90’s. The world has moved on and he hasn’t.

    • lprent 1.1

      Not to mention the BCom – from memory he trained as an accountant and worked as an auditor… And wasn’t Muldoon yet another accountant as well?

      I was thinking about that and rigid thinking while I was writing the post.

      The other reason I went back to uni and did the MBA was because my initial training was mostly in science. Running across accountants was a bit of a shock to my system as they seemed to argue with a arcane set of rules that bore little relationship to the reality of running a production line. I figured I needed a good overview of accounting and I still find that useful. I avoid accountants..

      Happily going back to uni was good because it introduced me to PC’s and I used the MBA to shift out of management and into programming (I found the MBA rather boring overall).

      • Jokerman 1.1.1

        thanks for the overview Lynn; yes, a cliff is being approached…..

      • Colonial Viper 1.1.2

        Someone stupid is no doubt going to accuse you of bragging about your MBA again.

        • lprent 1.1.2.1

          *sigh* I suspect you’re right and if I asserted that I knew something about programming, leaky buildings, management, earth sciences, army or whatever the innumerable skill sets I either have or have had – then many of the same people’s immediate response would be that I was talking out of a horses rectal orifice.

          If I’m going to use my real name in these debates then about the only benefit is that I can say exactly why I can say why I hold particular opinions. For some strange reason this often arises out of experience and education. So when the context demands that I say why I hold an opinion then I usually say why.

          Silly buggers reveal more about their own serious inability to judge what is relevant than they do about my ego – which is rather large – but orientated towards programming rather than other people. You have to have a good opinion of your own abilities to write good code for long periods. It is what gets you past the blocks. People tend to be somewhat boring and depressingly predictable by comparison.

          • BernyD 1.1.2.1.1

            Don’t let them get to ya babe, I have a 3 month memory 🙂

            Almost everytime I ask I get it in the head.

            Let your opinions speak for themselves, observational facts are the key.

          • Jokerman 1.1.2.1.2

            i hope we do not all bore you up there?

            • lprent 1.1.2.1.2.1

              That was more of a reflection on meeting people in real life. Talking is such a slow way of communicating because you have to hang around while other person articulates (while people universally think that they are interesting when they speak, they are usually sure that whoever else is hogging the speaking time is a bore).

              Reading blogs is unusually efficient on time once you reduce the repitition the trolls leave behind them. You are limited mainly by how fast you can read and eliminate. I seldom find it boring – I am a very fast reader and pattern recognizer. I find the good grains fast…

          • SoSoo 1.1.2.1.3

            “I suspect you’re right and if I asserted that I knew something about programming, leaky buildings, management, earth sciences, army or whatever the innumerable skill sets I either have or have had – then many of the same people’s immediate response would be that I was talking out of a horses rectal orifice.”

            Nope. Degrees that cover those other subjects are real degrees in genuine academic subjects, whereas MBAs are an expensive prank invented by universities to make money from business people who want to have a picture of themselves wearing academic regalia. If you want to brag, brag about your real degrees – it would create a better impression.

    • Georgecom 1.2

      That is, I think, quite a good bit of framing to use on Key.

      paint the picture of the 1980s and early 1990s, including things like brick cellphones, hair and clothing ‘fashions’, old desktop computers etc. Link Keys economic successes to that period.

      Show the present realities including new technologies. Outline in some brevity the current economic situation and Keys inability to address them.

      Key becomes the old brick mobile phone, the IBM, the shoulder pad. Out of date and unable to compete in the present reality.

  2. Poission 2

    First there is no doubt that the high NZ dollar is effecting the productive economy,on that everyone seems in agreement (except Joyce) this was evident in today’s reduced fonterra payout,and the around 25% decrease in manufacturing exports.

    Bollard argued that they were hesitant as the housing and farm asset bubbles emerged,and “talked to the banks” but by that time the GFC was well underway in the US and the extended over investment in farm lending ( land capture eg Crafer) persisted.

    A substantive problem is that unbridled growth in the unproductive ( property) sector will persist unless we have some form of capital gains or asset tax regime ie a fiscal policy,the asymmetry is evident in the economy.This is where NZ is an outlier the UK,Aus,the US all have some form of tax,there are multiple options that could be tailored to NZ.

    Another simplistic option would be LVR on investment property,the over geared borrowing was a fundamental cause of the growth in Ponzi finance such as the Finance companies eg Minsky.

    http://www.frbsf.org/news/speeches/2009/0416.html#2

    at present there is no plan B.

  3. blue leopard 3

    “If it is broke, then fix it” is certainly not the orthodoxy at present.

    “Now it is clear that the economic orthodoxy that we and the rest of the world has adopted since the 1970s has also run it’s course.”

    I baulk at the implications of this statement; as if it ever worked. I think it needs to be acknowledged that for some participants of society the orthodoxy that is crumbling at present never worked at all.

    And had this sector of society not been categorically ignored the whole way through, then perhaps the orthodoxy that is crumbling at present could have adjusted itself and not caused quite so much serious damage.

    The way our cultures values has been screwed up by this orthodoxy also needs to be factored as part of the damage that has been caused; or that too will be left unaddressed.

    Unless these points are acknowledged, I don’t hold out much hope for any improved orthodoxy.

    • lprent 3.1

      I think it needs to be acknowledged that for some participants of society the orthodoxy that is crumbling at present never worked at all.

      Oh I’d agree with that as well. But that is kind of axiomatic with any economic system that it will never be perfect for everyone.

      In the previous orthodoxy I’d say that some of the jobs that were produced by padding out the railways and the post office and the like didn’t work either. Most of them were meaningless and many of the participants hated them with a passion. I flatted with a few guys working at the railways and I’ve worked both at telecom in the early 90’s and with people who got the boot from there in the big layoffs (many of whom went into the nascent electronics/computer industry areas).

      However in the mid-00’s we got long-term unemployment well down and it was even into the semi-rural ‘heartlands’. Various other countries have managed the same using mixes of policies.

      That is a pretty good measure that a system is working when an unemployment system is a temporary transition rather than a career. Even now, and despite the kind of dumbarse unproductive and outright vindictive silliness of Paula Bennett, our actual underlying long-term unemployment don’t look too bad compared to most countries. This labour and skills market resiliency is in a wide open economy and a hell of a contrast to previous recessions even as recent as the 1997 one…

      The problem is that I suspect that as the cross-currency exchange rate screws exporters it will start getting worse in a hurry.

      The problem in what went on prior to the current orthodoxy, as I was pointing out in the post, really didn’t work for any enterprise that was trying to produce anything. If they can’t make a return on investment then eventually they’ll have to shut up shop from maintenance failures if nothing else. In NZ we were heading well down that path in 1984. Jobs were heading the same way.

      There was too much protection and a import barrier was becoming the way of printing money. If it’d been caught in the 60’s then the change I’d have suggested was that tariff barriers had fixed reduction and termination dates. Then they would have done what was intended – to foster the growth of local capabilities and industries..

      • blue leopard 3.1.1

        Thanks for the response lprent.

        Its true that it would be o.k if the 4% unemployment in the mid 2000s* was merely a flow of people onto and off welfare, yet this would have to be researched to ensure that this was the case

        If this was not the case however, this “low figure” represents 4 out of every 10 workers-which might be “great” for manufacturers and employers (in which case they really need to do something about all the whinging about people on welfare)-yet for the person unemployed (both their ‘spirit’ and their family) and also for the society that misses out on their active input…well I don’t think this is something to be happy about at all, quite frankly.

        I hope the new orthodoxy considers wider issues than simply fiscal ones or it will mean that the new orthodoxy is just as beholden to money interests as the old one was.

        I deem it useful to be eternally mindful about how money is supposed to be the servant not the master.

        * I got the stats from here

        • karol 3.1.1.1

          0% unemployment would be a good target. But, correction, bl, 4% = 1 out of every 100 workers.

          • blue leopard 3.1.1.1.1

            Oh dear lol whoops! thanks Karol, I thought at the time of writing that sounded a little high, even for our current condoning of unemployment, yet didn’t think to double check. Cheers.

          • lprent 3.1.1.1.2

            0% unemployment would be a strong indicator that EITHER automating the crap out of all jobs would be a really good investment and a consequent bust was coming in which unskilled workers would get shafted OR there was a major rigidity in the local economy and a bust was going to come when the cost levels rose too high and everything turned pear shaped.

            The reasons are pretty obvious. Steady state solutions for any human system don’t exist outside of the fevered fantasies of utopians because people always use their brains and things change. A 0% unemployment indicates that change is either going to have to happen or that it is being forced not to happen.

            In the first case (1973 for instance) employers were desperate for employees, and workers were jumping all over the place in search of better paid work. For factory workers in Auckland a few months was a long stay at a company. I saw a shadow of this in 1975 when I first started doing factory work whilst still at school. Many of my school friends went out to work at age 15 and are consequently these days quite likely to have had long periods of unemployment due to lack of training. There was a hell of an effort to automate workers out of a job in the 70’s and 80’s because machines were more reliable.

            If enterprises aren’t being shut down and are instead left open to provide jobs, then there are a hell of a lot of people being paid to do sweet FA. At the same time as I started work with massive labour shortages there were people doing exactly that in railways etc being bored shitless… The cost of those enterprises was being carried by the other parts of the economy with the inevitable drag.. The environment changed and all of a sudden we had a pile of unemployed people with limited skills that we couldn’t use.

            This was what eventually happened to all of the fully planned economies.

            You’d expect that there will always be a percentage of the workforce who are unemployed in any dynamic system. If not immediately then within a decade. The trick is to make it so people aren’t stuck unemployed because of a lack of jobs. But they may have to move, change professions or retrain. You make those alternatives easier because that is what is required to have a low unemployment in a fast moving world.

            It is always going to be a fast moving world when there are lots of people around. Right now we have something close to half of all of the humans who have ever lived are alive right now. Innovation is consequently rather high.

            • Colonial Viper 3.1.1.1.2.1

              0.5% unemployment is fine. In no way does that represent a static (rigid) state for families and for individuals because it simply describes the overall picture for society.

              Individuals will change jobs, take a month or two off work, move around and play around. The unemployment rate between towns and regions will also vary and change dynamically over the course of a year or a few years.

              A 0.5% unemployment rate could suggest that up to 1:20 people are transiently unemployed during a year. But what you don’t get is the extremely human damaging long term unemployment.

              A huge amount of not for profit employment in the industry of emotional labour (care giving, ingterpersonal support etc) could be created. It’s sorely needed. And it can’t be automated.

            • prism 3.1.1.1.2.2

              You’d expect that there will always be a percentage of the workforce who are unemployed in any dynamic system. If not immediately then within a decade. The trick is to make it so people aren’t stuck unemployed because of a lack of jobs. But they may have to move, change professions or retrain. You make those alternatives easier because that is what is required to have a low unemployment in a fast moving world.

              That’s what we want to remember for employment stats not magic numbers like 0% – Equilibrium means there is no dynamic energy.

      • geoff 3.1.2

        However in the mid-00′s we got long-term unemployment well down and it was even into the semi-rural ‘heartlands’. Various other countries have managed the same using mixes of policies.

        Low unemployment in the mid-00s (presume you mean 2000s) was due mostly to the world economy being in the midst of a bubble, right??

        • lprent 3.1.2.1

          It helped. But the greater mix in the local and export economy helped much more.

          • Colonial Viper 3.1.2.1.1

            Private debt levels drove the majority of NZ’s economic growth in the early 21st century IMO.

            Household debt went from roughly 100% of household income in 2000, to a massive 150% of household income in 2010.

            That injection of credit created money into the NZ economy did more than anything else to fuel “economic growth”.

            • Draco T Bastard 3.1.2.1.1.1

              Private debt levels drove the majority of NZ’s economic growth in the early 21st century IMO.

              Not just in the NZ but in the entire developed world. That debt is a major reason the economy is presently collapsing.

              • blue leopard

                …And if the loans that private debt is caused by weren’t so available, then people might have started noticing how wages weren’t buying as much, nor savings keeping their value.

                Keeping the punters happy in this way never proved this market fundamentalism ever worked, it simply put off the day more people realized that the orthodoxy was a farce.

          • geoff 3.1.2.1.2

            What exactly do you mean by ‘greater mix’?

  4. Dv 4

    NZ currency is very highly traded.

    Why not a tax on trades.
    It could also be adjustable to damping the trading when needed.

    • Colonial Viper 4.1

      a financial transactions tax, in other words.

      • Dv 4.1.1

        Thanks Viper.

        The other thing that struck me was the comparison between Key and Muldoon. Both clinging (desperately) to out dated paradigms.

        I guess though at least Muldoon had a plan of sorts for benefit of NZ.

      • mike e 4.1.2

        with high speed high rate trades at a higher rate of tax to stop auto traders from taking advantage!
        Those buying our exports ie the productive sector getting reimbursed!

      • Dv 4.1.3

        It appears the currency trade in NZ is about 200 billion a month.

        A FTT of 0.1% would raise 200m mth or 2.4b in a year.

        A FTT of 0.5% would raise 1 b mth or 12b in a year.

  5. karol 5

    Another round of simple minded gits like Rodger Douglas and his cohort waving their only tool around were gets to be almost as bad as watching National politicians sticking their head in the sand to avoid learning too much.

    Indeed. To me there is much to ponder on the way Muldoonism gave way to Rogernomics and “neoliiberalism”.

    So as the system now is looking like it’s crumbling, there’s also the possibility of it being replaced with another right wing orthodoxy. They have their think tanks and well funded resources for promoting their next wave of “orthodoxy”. So, it looks like Sue Bradford’s idea of the need for left wing think tanks has something to commend it.

    Of course online media and networks help with this.

    • bbfloyd 5.1

      Without the essential debate being promoted right across the spectrum of society, any change to economic orthodoxy will be as a result of a similar situation to 1984… in other words, not until the economy is either on the point of imploding, or already having tipped over the cliff..

      The very grave situation we found ourselves in then gave Douglas, and his acolytes free rein to do as they pleased….. the resulting carnage to the fabric of society should be instructive as to how evolutionary economic policy would produce far better outcomes….

      Sadly, that isn’t going to happen… the government that inherits the “dying patient” that represents our economic, and social sovereignty is going to have no choice but to take “emergency” measures to try to keep the “patient” from expiring before any cure can be instituted…Which will inevitably produce distortions, which will be seized apon by the “fairfax” fourth estate as evidence of the left’s incompetence…….and the roundabout goes around again……

      Same old same old…. This is NOT how we should be running a country, or a society that would work in a way that could have happened if we could have kept the tories away from the money pot… in other words…. a healthy economy, and society…..

      • lprent 5.1.1

        I much prefer evolutionary change to revolutionary change. What has to be watched for is the dumbly orthodox who refuse to change.

        John Key for instance appears to be locked into the 80’s and 90’s.

  6. aerobubble 6

    We should not give the Reserve Bank more tools, because
    they cost money and don’t work. Its nice to live in a
    country, unlike so many comparable nations, that
    doesn’t need to spend money to effect change, we
    can see the effects all over our economy of doing
    nothing, having to wait for the rest of the world
    to confirm, test, and implement legislative processes
    that cost nothing and have 100% guarantee of success
    has always worked for NZ.
    Its an inspired vision we have lost, now Brash is nolonger
    head of the Reserve Bank, and our economy has no problems
    and farmers should stop their whiny dollar woes.
    Brash was rolled from ACt by a much better politician.

  7. BernyD 7

    Another option for our hemorrhaging finances, I ‘m no wizard but …

    The problem with paying the local transactions with foreign loans is that our bank balance may indeed flip into negatives, if the exchange rate fluctuates.

    We can’t allow our balance to go negative as all our financial systems assume an absolute number, and we can’t pay from a -ve balance account.
    (Tell me I’m full o shit if ya like)

    The answer? …

    We use a second account to “Hold” the debt, and transfer money into the operational account to keep it in the positives, probably best to use a big number like say 10 billion.

    As long as it’s accounted for, it legal, it allows us to continue paying the bills, without rupturing the finacial forecasting mechanisms.

    We have just created 10 Billion theoretical dollars to help fund ourselves with.

    Like I say tell me if I’m an idiot, I’ve suggested this before, but no one ever thought it worthy.

    Room to move is what we need, and Paula can stop berating people so they’re forwarned of a zero bank balance coming in the near future.

    • BernyD 7.1

      As far as I know we have never been in the situation where our daily fiscal payments may outstrip our daily intakes, i.e go negative, we can’t pay people with a 0 or -ve bal account.

      • BernyD 7.1.1

        The more I think on it the better this one sounds, we should make it 500 billion
        It’ll mean we can at least feed ourselves if the international financial system does ever collapse.

        Home based Security, it may lead to a virtual asset stripping of NZ, but they’d have to walk in here and steal our food from our tables, which wouldn’t happen of course.

        Some numbers just have to remain positive people, and this will make sure of it.

    • Lanthanide 7.2

      I’m not really sure what you’re talking about.

      The NZ government as it stands does not borrow foreign funds. It borrows NZ dollars. Foreigners trade their foreign currency for NZ $, then lend them to the government by buying government bonds. In 10 years time or whenever, the government bonds expire and they pay back the holder of the bond the face value + whatever the rate was at time of issue, say 5%. The person holding the bond now has a big swag of NZ $. If they want to take it back to their foreign currency, they must buy their currency on the market at whatever the going rate is.

      The exchange rate doesn’t affect NZ’s bank balance from foreign loans, because what the NZ government borrows is NZ $s (that foreigners bought on the open market).

      • BernyD 7.2.1

        We are borrowing to pay the bills constantly at the moment, i.e no money left.
        I think it was milssy that uncovered it.

  8. captain hook 8

    you have to be careful lprent.
    there is no one right way and while colin james might sound as if he has got it right then if that were so the RB would be doing it now.
    If it is going to take fiscal unorthodxy to make it all whipty doo then it will happen when it is ready.
    it is just not possible to conjure it up out of thin air.
    NZ will come right when the US comes right and any scintilla of belief that we can do it ourselves is just wishful thinking.
    just hang on and get some new strings to your bow in the interim.

    • lprent 8.1

      Right now I’d just settle for politicians and economists looking to see how change should be achieved.

      • Poission 8.1.1

        The problem is thus,that the complex system that has been developed (along with the so called constraints) has developed into a system that no one really understands due to its overcomplicated description.

        The evolutionary paradigm that is becoming the new normal (orthodoxy) is for greater simplification which reduces uncertainty ie less is more.The standard model of physics.

        There is a good reason here is to reduce noise to see more signal ( and decrease the information entropy or disorder )

        That the underlying message is not getting communicated by the commentators and so called analysts who seem to have a basic belief in faith based metrics or indicators ( eg Libor) suggests they either do not understand ( an education problem) or are dismissive (an ideological problem).

        Andrew Haldane presented this paper at Jackson hole

        The Dog and the Frisbee ,a Seminal paper in Economics.eg

        Oscar Wilde said of cynics that they knew the price of everything and the value of nothing.2 Autistic savants have an acute case of this problem. Often, they combine prodigious memory skills (knowing “the price of everything”) with serious deficiencies in value judgements (understanding “the value of nothing”). They are penny-wise and pound-foolish.
        These neurological traits are linked. Too great a focus on information gathered from the past may retard effective decision-making about the future. Knowing too much can clog up the cognitive inbox, overload the neurological hard disk. One of the main purposes of sleep – doing less – is to unclog the cognitive inbox (Wang et al (2011)). That is why, when making a big decision, we often “sleep on it”
        .
        “Sleeping on it” has a direct parallel in statistical theory. In econometrics, a model seeking to infer behaviour from the past, based on too short a sample, may lead to “over-fitting”. Noise is then mistaken as signal, blips parameterised as trends. A model which is “over-fitted” sways with the smallest statistical breeze. For that reason, it may yield rather fragile predictions about the future.

        http://www.bankofengland.co.uk/publications/Pages/news/2012/075.aspx

        PDF at bottom.

    • Colonial Viper 8.2

      there is no one right way and while colin james might sound as if he has got it right then if that were so the RB would be doing it now.

      This is a really illogical statement. The RB aren’t doing the right things because their view of the universe is not right. Plus the mission they are scoped with is highly limiting (inflation targetting).

      I heard (Bollard?) on radio the other day insisting that the younger generation today are in a far better position to prosper than their parents and grandparents generation.

      He’s a good guy but has NO FUCKING IDEA. The middle and upper middle class 50-70 year olds living out there made it on a rising tide of energy intensity, social security and full employment. At no time in the young lives of those people was there 25% to 30% youth unemployment nor 20 year olds with $50K worth of student debt.

      NO FUCKING IDEA whatsoever.

    • Draco T Bastard 8.3

      You’re being sarcastic right?

  9. PolishPride 9

    In the past I have asked the Reserve Bank on a couple of occasions who owns them. I am assured it is owned by the New Zealand Government and therefore any profit it makes goes into the govt coffers etc. etc….
    We have the National Debt. Both main parties have said they want to get us back into surplus in the next 3-4 years.

    I undertsand that just printing money is inflationary and have studied some economics (limited school and University). Given some of the principles I understand how doing this and injecting the extra cash into the economy could fuel inflation.

    But I’d appreciate it if someone could shed some additional light on whether thi is true or not given the following.
    A. I understand how it would theoretically be inflationary by injecting cash into the economy in a closed system (say back in the 80s or earlier)….. how does it still apply in aglobal economy?
    B. I don’t see how it is inflationary if the money is printed (or just created and added electronically to a govts bank account) and then sent straight overseas to pay off the National Debt….i.e. if it doesn’t enter the economy how is it inflationary?
    C. As money IS created and added to the NZ economy all the time via banks in NZ through the fractional reserve system. How can the govt printing the money and sending it to pay off our overseas debts be any worse? If it is not, then why not do exactly that?

    Also what would be the hypothetical implications on our overseas debt if NZ decided to up and move to a Resource Based Economy tomorrow and removed the need for money (and all money was removed from circulation)?
    Assume for the purposes of the example to keep it simple that all needs and wants of all individuals continue to be met under the RBE….

    • BernyD 9.1

      You have to pay Intl debt with commodity assured money, you can’t print it a send it, the gold will always have to follow.

      We can do it internally though, hence my post above.
      We have done this twice in NZ (Both National governments) , but we need to do it openly this time, and document it so it will never happen again.

      • Lanthanide 9.1.1

        “You have to pay Intl debt with commodity assured money, you can’t print it a send it, the gold will always have to follow.”

        Um, no you don’t. No (significant) currency in the world has been commodity-backed since 1971.

        No countries sends shiploads of gold and silver with military escourts to pay off debt any more.

        • BernyD 9.1.1.1

          I apologize , sorry , but the GFC ????
          check out the comment above mine …

          Open mike 23/09/2012

        • Colonial Viper 9.1.1.2

          Um, no you don’t. No (significant) currency in the world has been commodity-backed since 1971.

          The USD is (indirectly) backed by oil.

          As more and more oil gets traded in other currencies, the importance of the USD will decline.

    • RedLogix 9.2

      I undertsand that just printing money is inflationary

      No this is a very hoary old myth. It’s only inflationary under a certain range of very limited conditions when the money being printed is not being used in the real economy, but being speculated with due some other external political factors. This was very much the case with the hyper-inflationary period during the Weimar Republic for instance. And in New Zealand’s case a lot of that was used to speculate on house prices … which was of course asset price inflationary (although wages failed to keep up). .. and ultimately this too has it’s roots in various political considerations.

      And of course the vast majority of money was merely printed ‘ex nihilo’ (out of nothing) by the privately owned banks anyhow.

      But in the normal course of events almost all money is actually just ‘credit’ and is printed out of nothing and as long it is being absorbed by the capacity of the real economy (as distinct from the speculative one) this is not inherently inflationary.

      And of course more than a few people have posed exactly the same question; why do we tolerate private banks creating money when logically this has to be the ultimate in public goods.

      http://www.positivemoney.org.nz

      • Lanthanide 9.2.1

        “No this is a very hoary old myth. It’s only inflationary under a certain range of very limited conditions when the money being printed is not being used in the real economy, but being speculated with due some other external political factors. This was very much the case with the hyper-inflationary period during the Weimar Republic for instance.”

        My boyfriend made exactly this point just a day or two ago.

        Printing money is (hyper)inflationary when the economy is already at (or near) it’s productive capacity limits. If there is a lot of spare productive capacity in the economy, printing money isn’t, in itself, inflationary.

        • Colonial Viper 9.2.1.1

          Even better, if the money is being used to improve the productive capacity, human capital and productive infrastructure of the economy it will actually lead to heightened international competitiveness.

          What you have to look out for is what has already been pointed out: that the monies (credit) isn’t being used to fuel speculative bubbles, rorts and bad loans.

  10. PolishPride 10

    Sorry on rereading my earlier comment might appear like an attempt to hijack the topic. The reason is that as ridiculous as it sounds I am writing a book on whats wrong with the current system (i.e. “If it is broke” ) and a proposed solution that eliminates many of our current problems (the “then fix it” part), hence my interest in this blog topic.

  11. captain hook 11

    noo zillun has been test marketed, televised and focus grouped into a kind of mass insanity.
    It is going to take a strong hand to break the spell.

    • Draco T Bastard 12.1

      Our economic pie simply has to grow in order for us to be able to deliver the kind of society where our children and grandchildren want to stay, work, and play, and contribute to our society.

      FFS, when are these idiots going to wake up to the fact that infinite growth on a finite planet is impossible.

  12. lefty 13

    You can’t get the right answers until you ask the right questions.

    Things that were never any good in the first place need replacing not fixing.

    Even the bravest politicians and economists are only asking how they can fix fix the capitalist system.

    Its the wrong question.

    • Colonial Viper 13.1

      Paraphrasing Cunliffe: some hard Right Wing capitalists want to cut your leg off without anaesthetic; some nice social democratic Left Wing capitalists want to cut your leg off with anaesthetic.

      Some choice eh.

    • Draco T Bastard 13.2

      Even the bravest politicians and economists are only asking how they can fix fix the capitalist system.

      Its the wrong question.

      QFT

      The capitalist system sees the economy as a way to enrich a few rather than supplying for everybody on the society.

  13. Draco T Bastard 14

    This has relevance even though it’s about cyclists:

    The affect heuristic explains how our minds take a difficult question (one that would require rigorous logic to answer) and substitutes it for an easier one. When our emotions get involved, we jump to pre-existing conclusions instead of exerting the mental effort to think of a bespoke answer. The affect heuristic helps explain why birthers still exist even though Obama released his birth certificate—it’s a powerful, negative emotional issue about which lots of people have already made up their minds.

    I think you’ll find that that’s true of the people who want the economy to continue the way it was even though it’s GFC just proved that the economy doesn’t work the way they believe it does.

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