Well, bank recapitalisation is here

rrpc

andrewdeerpark wrote: »

Why are the economists who advocate a free market afraid of its consequences right now regarding our Irish property market?

Lets have a blood on the floor and be done with it regardless of who fails (big developers, insurance moguls etc), p*****g away our future retirement fund on a failed entity is that any better??!!

It is amazing how learned economists run from radical market movements they prefer to write about such events (in retrospective) rather than let them run in practice proving the spineless nature of the science.

It's funny how people can divorce themselves from their own actions over the last five years as if there was no connection between the decisions they made and those made by the developers and bankers in the same period.

So the banks shouldn't have given out mortgages and funded development and the developers shouldn't have built houses when the price of property was going up. People who boasted about the value of their house going up after they bought deserve everything they get now that the value has plummeted...

So, let everything run it's course, dump all the unsold property on the market at the same time at whatever price the market will take, keep incurring job losses in construction and associated industries and force the unemployed out of their houses and dump them on the market as well. Keep going until everything is sold that can be sold and the wind whistles through empty homes as the last plane flies out carrying the remaining emigrants to wherever will employ them.

In a nutshell, let's return to the eighties, oh halcyon days!

cavedave

I think I was overly glib in saying let the bankrupt banks fail. All sorts of things could happen if they did fail involving small businesses getting loans withdrawn and such that would have bad consequences. Bad consequences that I cannot quantify and do not think are fair on the properly run businesses.

rrpc

And letting these housing stocks go at fire damage sale prices would create a negative equity situation for thousands of people who bought at the height of the market. Maybe that's not you Dave but you proabably know lots of people who are already there.
.

That is me. But I have no god given right for my house to keep going up in price. Standing king Canut like against the real value of items is not going to work for long.

Should the Dutch government have propped up the prize of tulips indefinitely because so many people had invested in them?

Tulip-holders held public meetings hoping to find the best way forward. Deputies were sent to the government in Amsterdam, seeking a solution. At first, the government refused to interfere. It advised the tulip-holders to agree a plan among themselves.

....
The question was raised in Amsterdam, but the judges unanimously refused to interfere, on the ground that debts contracted in gambling were not debts in law.

To find a remedy was beyond the power of the government. And so the matter ended.

from http://www.thetulipomania.com/

Économiste Monétaire

Morgan Kelly roasts the recapitalisation of Anglo Irish Bank in today's IT:

Better to incinerate €1.5bn than squander it on Anglo Irish Bank

For this Government, the bailout follows a compelling political logic: Anglo Irish funds developers, and developers fund Fianna Fáil, writes Morgan Kelly
FOR THE current Government, a month without a catastrophic policy error has come to seem like a month wasted. After the bank liability guarantee in September and the medical card fiasco in October, the Government had a quiet November but has now come roaring back to form with the bailout of Anglo Irish Bank. Attempting to recapitalise Anglo Irish is not only expensive and economically pointless, but futile.

Some simple arithmetic shows the hopelessness of what the Government is trying to do. In the typical property bust over the last 30 years, US banks have lost on average about 20 per cent of what they lent to developers.
Let us suppose that Anglo Irish is no more incompetent or dishonest than the average bank and will also lose up to 20 per cent of what is has lent.
Then, given lending of about €80 billion to developers, it follows that Anglo Irish is facing losses on the order of €15 billion. The true figure could easily turn out to be twice as large.

With likely losses of this magnitude, the Government's proposed investment of €1.5 billion will vaporise in months, forcing it either to continue pouring good money after bad, or to repudiate Anglo Irish's liabilities. For all it will achieve, the money might as well be piled up in St Stephen's Green and incinerated.

Anglo Irish epitomised the Irish bubble economy. Its rise began a decade ago as the boom created a demand for houses and commercial property. As prices started to rise, banks made a miraculous discovery: the more they lent, the more prices rose; and the more prices rose, the more people wanted loans to get into the booming market. And the more loans that bankers made, the bigger the bonuses they could award themselves.
It was brilliant while it lasted. One of Bank of Ireland's stable of developers would buy an office block for €100 million, and sell it on a year later to one of Anglo's for €120 million, and so on: a process known to bankers as adding value. Everyone was a genius and nobody could lose.

As a senior executive of Anglo Irish once assured me, there was no risk involved. All of the loans were guaranteed by the enormous property portfolios of the borrowers. What concerned me at the time was not that he was spouting transparent nonsense - that, after all, was what he was paid to do - but that he clearly believed it himself. Sadly, like any pyramid scheme, it contained the seeds of its own destruction.

Once banks stopped lending, as they were forced to do earlier this year, the market collapsed. Developers were left holding properties whose rental incomes were a ruinously small fraction of their interest payments, and banks discovered that their collateral was worthless.

All Irish banks have been injured by the collapsing property pyramid, some fatally so. Unfortunately, as international experience shows, banks that have been overwhelmed by bad property loans do not simply fade away.

Their final act typically has three scenes.
First, the bank starts to admit that a certain fraction of its loans are receiving active management, it increases its bad loan provision but by an unrealistically low amount, and its share price collapses.
In the second scene, evidence of malfeasance starts to appear, as senior bankers are found to have had difficulties in distinguishing the bank's assets from their own, and to have been acting as poachers as well as gamekeepers in their dealings with developers.

It is to be hoped that any Irish bankers in this situation have heeded the cardinal rule of Irish finance and kept their more imaginative dealings within the jurisdiction. As Patrick Gallagher discovered, the British judicial system takes a less indulgent view of lapses of fiduciary responsibility than does our own, and seems to harbour a particular antipathy towards charming Irish rogues.

In the final stage, as the bank slides over the brink of collapse, senior managers loot its assets. Looting a bank involves nothing so unsubtle or easily traceable as driving away with carloads of cash.
Instead, each bank has a filing cabinet with personal guarantees written by borrowers and deeds to property pledged as collateral (large property deals involve surprisingly little paperwork); and these documents have a tendency to find their way into the briefcases of departing executives who can later negotiate their return to their original owners.

So much for the future. Right now, in the "nothing in the last six months has really happened" world of the Government, the bailout of Anglo Irish follows a compelling political logic. Anglo Irish funds developers, and developers fund Fianna Fáil.

By any other criterion, a bailout of Anglo Irish is senseless. Institutions such as AIB and Bank of Ireland fulfil an economically vital role of clearing payments and lending to households and businesses; Anglo Irish and Irish Nationwide were purely conduits for property speculation.
They fulfil no role in the Irish economy and their absence would not be noticed.

By using taxpayers' money to acquire Anglo Irish's portfolio of dingy shopping centres and derelict development sites, the Government is squandering scarce resources that are needed elsewhere. Just as the State is putting too much money into Anglo Irish, it is putting in too little to recapitalise AIB and Bank of Ireland on which, whether you like it or not, large sectors of the Irish economy depend.

Governments tend to forget whose interests they are supposed to serve. Our Government was not elected to look after the managers, shareholders and bondholders of recklessly mismanaged banks. Its sole duty is to Irish taxpayers: to ensure that banks that serve a useful economic purpose continue to operate, while those that serve none are swiftly closed down.

Morgan Kelly is professor of economics at University College Dublin

Link

silverharp

rrpc wrote: »

And letting these housing stocks go at fire damage sale prices would create a negative equity situation for thousands of people who bought at the height of the market. Maybe that's not you Dave but you proabably know lots of people who are already there.

its going to happen anyway, property will fall to the level it needs to, the only question is the time to get there. If Japan is a model then property here have to fall 2/3rds from the top. The only question is does it happen over 5 years or over 10.

meglome

As a taxpayer I'm not happy with this deal. I think we could have got more for our money and Anglo Irish Bank is an accident waiting to happen by the sounds of it.

So any of you with backgrounds in economics and finance, what do you think so far?

meglome

meglome wrote: »

So any of you with backgrounds in economics and finance, what do you think so far?

Let Anglo Fail. If we are to bail out a bank let it not be them

MSporty

Deleted User wrote: »

Let Anglo Fail. If we are to bail out a bank let it not be them

Anglo are being bailed out because most of their clients are in the fianna fail "golden circle" or closely associated with it. Why else would this bank be bailed out

MSporty

MSporty wrote: »

Anglo are being bailed out because most of their clients are in the fianna fail "golden circle" or closely associated with it. Why else would this bank be bailed out

We should be ringing and emailing every newspaper, radio station and TD (i know they are on holidays email them)
http://www.thepropertypin.com/viewtopic.php?f=4&t=14604
^^ email addresses list

Maybe we can prevent the nation going bankrupt to bail our Irelands golden circle of the richest. It makes me wonder why Fianna Fail are so hellbent on saving them it stinks to the high heavens........!!!! :mad:


Ireland is as bad as Africa for corruption the difference is we do it with money they do it with guns.

cavedave

This has gone fairly political. So to return it to economics. Who has been in a situation like this before? What did they do? Did it work?

Japan. Propped up Zombie banks. No

Sweden. Took over the banks. Yes.

These are different because they could control their own currency and they were not bad cases in a worldwide recession but isolated cases in fairly good times.

So is the Savings and Loan crisis in the 1980's a better example? Was one state particularly badly hit?

Are there any examples of countries who left their banks (or at least the specialised ones (like anglo Irish)) fail?

If you have a bit of time this is an 1850 economics description that makes funny/scary/annoying reading. Its about the south seas bubble of Newtons time. A play of it would be like "the crucible" in terms of modern day parallels.

SimpleSam06

cavedave wrote: »

Are there any examples of countries who left their banks (or at least the specialised ones (like anglo Irish)) fail?

It has gone considerably deeper than the banks at this stage. The entire global economy is listing, and while specific questions about banks need to be answered, the situation needs to be dealt with as a whole - you won't fix this by fixing the banks.

I would recommend what I recommended some months ago in accom/prop, and what Obama seems to be doing in his policy making, and what pulled the US out of the first Great Depression, Germany out of the Weimar stagnation, and Japan after WW2. A widepsread program of public works combined with tooling up of new educational facilites to create a fresh (or in Ireland's case first) industrial base, combined with a severe curtailing of the public sector.

silverharp

SimpleSam06 wrote: »

I would recommend what I recommended some months ago in accom/prop, and what Obama seems to be doing in his policy making, and what pulled the US out of the first Great Depression, Germany out of the Weimar stagnation, and Japan after WW2. A widepsread program of public works combined with tooling up of new educational facilites to create a fresh (or in Ireland's case first) industrial base, combined with a severe curtailing of the public sector.

There is a good case to be put forward that the spending programs extended the depression in the states(remember taxes were increased during this time). As for the German example again I think there is a good case that in purely economic terms the German economy would have bankrupted itself.
I think you are overestimating the abilty of an economy to pull itself up by its own bootsraps. Unless you are suggesting that "counterfitting" currency is a way to increase wealth , there has to be real savings in an economy to carry out the programs you are suggesting. As gov. spending has to be extracted from the private economy, to the extent that gov. spending increases, the private sector will be deprived of savings for profitable investments which will be diverted into pork barrel projects which will only benefit the people involved

SimpleSam06

silverharp wrote: »

There is a good case to be put forward that the spending programs extended the depression in the states

Only by those few economists who are opposed to such things as social welfare and minimum wage as well, a group who coincide usually with the proponents of the voodoo that is the Austrian school.

silverharp wrote: »

(remember taxes were increased during this time).

What are you talking about, only the top 3% of earners paid income taxes from 1926 to 1940.

silverharp wrote: »

As for the German example again I think there is a good case that in purely economic terms the German economy would have bankrupted itself.

So it had nothing to do with the reparations of the treaty of Versailles, than?

silverharp wrote: »

As gov. spending has to be extracted from the private economy, to the extent that gov. spending increases, the private sector will be deprived of savings for profitable investments which will be diverted into pork barrel projects which will only benefit the people involved

Again with the free market rubbish. Although taxation is viewed as leakage in certain models, that point of view fails to take into account infrastructure and societal developments without which the economy would collapse. In its simplest terms, the government aren't aliens from another planet, they are people tasked with distributing the wealth granted to them by the citizenry in a manner which will best benefit the country as a whole, which is a good and healthy thing.

book smarts

SimpleSam06 wrote: »

Only by those few economists who are opposed to such things as social welfare and minimum wage as well, a group who coincide usually with the proponents of the voodoo that is the Austrian school.

Again with the free market rubbish. Although taxation is viewed as leakage in certain models, that point of view fails to take into account infrastructure and societal developments without which the economy would collapse. In its simplest terms, the government aren't aliens from another planet, they are people tasked with distributing the wealth granted to them by the citizenry in a manner which will best benefit the country as a whole, which is a good and healthy thing.

Peter Schiff, who correctly predicted this recession, is a proponent of the voodoo school of Austrian economics. But that doesn't mean it's the correct model. All economic models are bogus.

Also, Japan's infrastructure push didn't bring it out of it's dark decade. Maybe the money spent on that would have been better spent elsewhere.

silverharp

SimpleSam06 wrote: »

Only by those few economists who are opposed to such things as social welfare and minimum wage as well, a group who coincide usually with the proponents of the voodoo that is the Austrian school.


What are you talking about, only the top 3% of earners paid income taxes from 1926 to 1940.

You will probably not agree with any of the conclusions of the article below, however I have yet to be conviced that growth in gov beyond the bare minimum is a good thing, how many more "benchmarkings" "decentalisations" "Corn Ethanol subsidies" or clowns like Gordon Brown giving he green light for everyone to go nuts by saying he has done away with boom and busts or subsidising the auto industry and spending money to reduce man made global warming at the same time, need I go on? gov is too inclined to misallocate capital and add to the cost of doing business and are too easily corrupted by special interest goups

I am actually looking forward to the few years, it will be an excellent case study to see if more gov. works

http://www.minyanville.com/articles/MER-GS-MCO-ms/index/a/15389

How Democrats Failed to Learn From FDR's New Deal.

Franklin Delanor Roosevelt is popularly regarded as the man who saved democratic capitalism with vigorous governmental intervention. But the failure of government – not the free market – created the Great Depression.

Here’s how:

Tax Hikes

FDR nearly tripled the tax burden between 1933 and 1940, boosting excise, income, inheritance, corporate, and dividend taxes and slapping a tax on “excess profits.” The highest individual tax rate soared to 79%. High taxes sucked money out of the private sector, smothered entrepreneurship and killed incentives to work and invest. By contrast, Treasury Secretary Andrew Mellon helped spark an economic boom in the 1920s by backing a plan to slash the top individual tax rate to 25% from 73%.

High Employment Costs

The New Deal raised the cost of employment, making it expensive to hire new workers and contributing to the nation’s high unemployment rate. The National Industrial Recovery Act and the Davis-Bacon Act mandated artificially high wages, further crimping private employment. The new minimum wage cut demand for unskilled workers. The new Social Security tax raised compensation costs. Compulsory union membership often fostered violent tactics – and the goal wasn’t increased efficiency or innovative products to grab market share. The WPA and other government agencies “created” jobs, but at great cost – private sector employment was lower in 1940 than it was in 1929.

Brutalizing Business

FDR railed against “economic royalists” and “privileged princes” who sought to establish an “industrial dictatorship” and a “new despotism.” Roosevelt issued about 3,700 executive orders, many limiting business activity, and let lose a plague of anti-trust lawyers on American industry. New securities laws made it difficult to raise capital. FDR ordered the breakup of the nation’s strongest banks, including those with the lowest failure rates. This created an uncertain business climate that stifled investment and killed private sector job creation.

Inflating Prices

The National Industrial Recovery Act of 1933, struck down by the U.S. Supreme Court two years later, created “codes” – cartels – in about 500 industries and limited competition in an effort to maintain high prices and, it was thought, wages. Business owners who responded to the market by cutting prices received a stiff warning from the federal government followed by a fine. The Agricultural Adjustment Act of 1933 also sought to keep prices high by limiting production. “Excess” food was destroyed or sold below cost overseas as millions of Americans went hungry. In 1937, “marketing orders” limited production of milk and fruit. Roosevelt apparently thought it was government’s role to protect established high-cost producers from entrepreneurs who could beat them on price. Roosevelt’s policies stifled job creation and raised prices for families already struggling to make ends meet.

Showcase Projects

FDR used tax money to build the Tennessee Valley Authority, TVA, a power-generating monopoly. He then exempted the TVA from state and federal taxes and regulations. But the massive project failed to produce an economic boom. In a report for the Cato Institute, Jim Powell, author of FDR’s Folly: How Roosevelt and His New Deal Prolonged the Great Depression, says non-TVA southern states such as North Carolina and Georgia posted stronger growth than TVA states because there was a faster transition to higher-paying jobs in manufacturing and services from farming.

if the New Deal were a product in a competitive market, Roosevelt would have been bankrupt. But politicians have different goals, different means of achieving them and a different scale for measuring success that have little to do with a market economy. Most of FDR’s “make work” government jobs created little of value and therefore didn’t give the economy a long-term boost. No matter. Harry Hopkins, one of FDR’s closest advisors, summed up the political philosophy of the New Deal: “We shall tax and tax, spend and spend, elect and elect.”

Voters might want to keep this in mind the next time a presidential candidate yaps about “giving” you some nifty benefit (i.e. buying your vote with your money) or “investing” in a spiffy new program which, wouldn’t you know it, just happens to gobble more of your taxes.

Historian David M. Kennedy won the 1999 Pulitzer Prize for his book Freedom from Fear, a review of the economic consequences of the New Deal. “Whatever it was,” he wrote, FDR’s New Deal “was not a recovery program.”

Here’s part of Louis Armstrong’s l940 song about the Works Progress Administration, the granddaddy of the nation’s workfare programs:

Sleep while you work,
Rest while you play,
Lean on your shovel
To pass the time away...

SimpleSam06

book smarts wrote: »

Peter Schiff, who correctly predicted this recession, is a proponent of the voodoo school of Austrian economics.

Cats and dogs in the street were predicting this problem back in 2001, and if they could do it, even goldbugging witchdoctors that actually decry the scientific method, and wait for it, mathematics, could certainly spot it.

book smarts wrote: »

Also, Japan's infrastructure push didn't bring it out of it's dark decade. Maybe the money spent on that would have been better spent elsewhere.

Japan already had an extremely mature infrastructure and industrial base - there was little enough that could have been done to improve it. Besides, pointing at Japan which was a fairly isolated example is fairly pointless when looking at a global depression.

silverharp wrote: »

however I have yet to be conviced that growth in gov beyond the bare minimum is a good thing,

Sure, why not, lets go down the libertarian route and revert to a feudal society where the strong take what they want and the weak live at their whim. A much better idea.

silverharp wrote: »

how many more "benchmarkings" "decentalisations" "Corn Ethanol subsidies" or clowns like Gordon Brown giving he green light for everyone to go nuts by saying he has done away with boom and busts or subsidising the auto industry and spending money to reduce man made global warming at the same time, need I go on?

The excesses of various governments, including our own, can be attributed to poor governance, not to the idea that capital needs to be privately controlled and distributed. To quote Keynes, "Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all".

silverharp wrote: »

gov is too inclined to misallocate capital and add to the cost of doing business and are too easily corrupted by special interest goups

Bad government is. The problem I see is that during "good" times, people will put up with any amount of malfeasance. I predict that will change shortly.

silverharp wrote: »

FDR nearly tripled the tax burden between 1933 and 1940, boosting excise, income, inheritance, corporate, and dividend taxes and slapping a tax on “excess profits.” The highest individual tax rate soared to 79%. High taxes sucked money out of the private sector, smothered entrepreneurship and killed incentives to work and invest. By contrast, Treasury Secretary Andrew Mellon helped spark an economic boom in the 1920s by backing a plan to slash the top individual tax rate to 25% from 73%.

Talk about your partisan rags. Read this for more in-depth information on this vastly complex issue.

silverharp wrote: »

High Employment Costs

The New Deal raised the cost of employment, making it expensive to hire new workers and contributing to the nation’s high unemployment rate. The National Industrial Recovery Act and the Davis-Bacon Act mandated artificially high wages, further crimping private employment. The new minimum wage cut demand for unskilled workers. The new Social Security tax raised compensation costs.

Yes, damn that minimum wage and social security, getting in the way of profits.

silverharp wrote: »

Compulsory union membership often fostered violent tactics – and the goal wasn’t increased efficiency or innovative products to grab market share. The WPA and other government agencies “created” jobs, but at great cost – private sector employment was lower in 1940 than it was in 1929.

Violent tactics that were begun by employers. Unemployment dropped to half what it was at the depth of the depression, then climbed somewhat, before dropping in WW2. See what happens when you look at the details?

silverharp wrote: »

Brutalizing Business

FDR railed against “economic royalists” and “privileged princes” who sought to establish an “industrial dictatorship” and a “new despotism.”

No harm to break up actual monopolies, the end result of Austrian stupidity.

silverharp wrote: »

Inflating Prices

The National Industrial Recovery Act of 1933, struck down by the U.S. Supreme Court two years later, created “codes” – cartels – in about 500 industries and limited competition in an effort to maintain high prices and, it was thought, wages.

So hold on a minute, was he destroying cartels or building them? Your article contradicts itself, usually not a good sign.

The rest of it is such unremitting bullshit I find it difficult to even read it, tbh. Argue for yourself rather than finding partisan blogs, of which there are an infinite supply, to do it for you.

book smarts

SimpleSam06 wrote: »

Cats and dogs in the street were predicting this problem back in 2001, and if they could do it, even goldbugging witchdoctors that actually decry the scientific method, and wait for it, mathematics, could certainly spot it.


Japan already had an extremely mature infrastructure and industrial base - there was little enough that could have been done to improve it. Besides, pointing at Japan which was a fairly isolated example is fairly pointless when looking at a global depression.

Strange you should refer to the scientific method, considering Economics is pseudoscience, surrounded in jargon and false rigour, where "experts" blind people with fancy maths and pretend they know what they're talking about-including Keynesianism. Look at the mess the "experts" have us in.

It's not a depression yet, and you were happy to refer to Japan when it suited you.

silverharp

Poor governance is almost guaranteed though? A state sector worker/organisation doesnt have to deal with the market and probably operates in some form of monopoly, there is no mechanism to ensure innovation or effecient supply of service. As for the Keynes quote, that lacks any content, how do you apply that to for instance Aerlingus v British Airways or Ryanair

SimpleSam06 wrote: »

The problem I see is that during "good" times, people will put up with any amount of malfeasance. I predict that will change shortly.[\Quote]


How will it change? State agencies are not going to come in one day and vote that they close themselves down in the public interest. And the “people” will always lobby to vote themselves more goodies or defer cuts or push the cuts somewhere else.






re taxes , Ok here is how I understood what happened , you will have to explain what context I am missing
and I will argue that raising taxes during a recession is the worst thing to do. With a $2 billion deficit during 1931, Congress passed, in the Revenue Act of 1932, one of the greatest increases in taxation ever enacted in the United States in peacetime.The range of tax increases was enormous. Many wartime excise taxes were revived, sales taxes were imposed on many items , the normal rate was increased from a range of 1.5percent–5 percent, to 4 percent–8 percent; personal exemptions were sharply reduced, and an earned credit of 25 percent eliminated; and surtaxes were raised enormously, from a maximum of 25 percent to 63 percent on the highest incomes. Furthermore, the corporate income tax was increased from 12 percent to l3 percent, and an exemption for small corporations eliminated; the estate tax was doubled, and the exemption floor halved; and the gift tax, which had been eliminated, was restored, and graduated up to 33percent.

SimpleSam06 wrote: »

Yes, damn that minimum wage and social security, getting in the way of profits.[\Quote]

Not getting in the way of profits, you will need to convince me that wage increases during a depression does not afect the total hours worked in the economy. Remember the cost of living drops when inflation is negative so real wages are increasing, if you peg the rate above what the market can bare then hours and jobs decrease.

SimpleSam06 wrote: »

Unemployment dropped to half what it was at the depth of the depression, then climbed somewhat, before dropping in WW2. See what happens when you look at the details?.[\Quote]


In May 1939, Treasury Secretary Henry J. Morgenthau Jr., one of Franklin Roosevelt's best friends, testified before the House Ways and Means Committee: "I say after eight years of this Administration we have just as much unemployment as when we started… And an enormous debt to boot". When he spoke, unemployment exceeded 20 percent. Hmmmmm... if thats a definition of sucessful policy , I'd hate to see if it went wrong.



The “enonomic Royalists” remarks were FDR's quips at anyone who critisied the new deal. There is no contradition in the article, of course FDR actions were restrictive,and with respect you seem more interested in winning a debate then in discussing the salient points. Merry xmas:D

SimpleSam06

book smarts wrote: »

Strange you should refer to the scientific method, considering Economics is pseudoscience, surrounded in jargon and false rigour, where "experts" blind people with fancy maths and pretend they know what they're talking about-including Keynesianism. Look at the mess the "experts" have us in.

All the good advice in the world is worthless when nobody is listening. As for the rest, not much to say to that really, and I'm not too sure why you're bothering to post in this forum.

book smarts wrote: »

It's not a depression yet, and you were happy to refer to Japan when it suited you.

Unfortunately you seem to have missed the "post WW2" part in front of that. But carry on strawmanning!

SimpleSam06

silverharp wrote: »

with respect you seem more interested in winning a debate then in discussing the salient points. Merry xmas:D

You win a debate by discussing the salient points. I'd find it easier to discuss them if your post was formatted to be readable though, so whenever you're ready. Merry Xmas!

silverharp

SimpleSam06 wrote: »

You win a debate by discussing the salient points. I'd find it easier to discuss them if your post was formatted to be readable though, so whenever you're ready. Merry Xmas!

I have amended as best as I can , no time to rewrite I'm afraid, do me a favour and respond in paragraghs , some posters find it irritating if their posts are responded to line by line

SimpleSam06

silverharp wrote: »

As for the Keynes quote, that lacks any content, how do you apply that to for instance Aerlingus v British Airways or Ryanair

How do you apply it to Microsoft or turn of the century rail Barons?

silverharp wrote: »

How will it change? State agencies are not going to come in one day and vote that they close themselves down in the public interest. And the “people” will always lobby to vote themselves more goodies or defer cuts or push the cuts somewhere else.

Nobody is saying that state agencies have to close down, and I'm not sure where you picked that up from. Streamlined yes, but it would be a huge mistake to say that everybody in the public sector is a timewaster. Also I'm not sure where you are pulling the concept of direct democracy from what I was saying.

silverharp wrote: »

Not getting in the way of profits, you will need to convince me that wage increases during a depression does not afect the total hours worked in the economy.

We're not talking about wage increases, we're talking about minimum wage. And do not try to say that social security has a net negative effect, unless you are proposing some sort of Darwinian culture, where the devil takes the hindmost.

silverharp wrote: »

Hmmmmm... if thats a definition of sucessful policy , I'd hate to see if it went wrong.

Heres a graph since a picture paints more words than I am willing to commit to this debate:

As you can see, there was a consistent drop in unemployment from the peak of the depression, spiked slightly during a mini recession towards the end, which was actually caused by Roosevelt cutting back government spending, but overall the trend is clear.

You also seem to miss out on the fact that government cutbacks in 1920 led to a savage recession at that point. Over the decade, about 1,200 mergers swallowed up more than 6,000 previously independent companies; by 1929, only 200 corporations controlled over half of all American industry. This is the source of Roosevelt's ire against monopolists.

By the end of the decade, the bottom 80 percent of all income-earners were removed from the tax rolls completely. Taxes on the rich fell throughout the decade. By 1929, the richest 1 percent owned 40 percent of the nation's wealth. The bottom 93 percent experienced a 4 percent drop in real disposable per-capita income between 1923 and 1929. The conservative Supreme Court struck down federal child labor legislation during this decade. More than half of all Americans were living below a minimum subsistence level.

The high taxes which you seem to be so completely opposed to were largely levied on the rich, redistributing the grotesque imbalance in capital income between the very few wealthy and the very many poor.

These are the triumphs of laissez-faire economic policies, before the Wall Street collapse.

Sweden, which followed a policy of Keynesian deficit spending, became the first country to recover from the great depression.

In 1936 the top tax rate was raised to 79 percent, and economic recovery continued; GNP grew a record 14.1 percent and unemployment fell to 16.9 percent. From 1945 to 1963, the top tax rate was 91 percent. It stayed at least 88 percent until 1963, when it was lowered to 70 percent. During this time, America experienced the greatest economic boom it had ever known until that time.

Regardless of these minor skirmishes fueled by apparently pro libertarian blogs and whatnot (although the vast majority of economists support the New Deal as an effective response to the Depression), I'm not saying to mimic everything that was done then. The policies I suggested were very clear, and if you would clarify exactly what your issue with them is, that might ease things along.

silverharp

SimpleSam06 wrote: »

Regardless of these minor skirmishes fueled by apparently pro libertarian blogs and whatnot (although the vast majority of economists support the New Deal as an effective response to the Depression), I'm not saying to mimic everything that was done then. The policies I suggested were very clear, and if you would clarify exactly what your issue with them is, that might ease things along.

There is an article in the August 2004 Journal of Political Economy entitled "New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis," by UCLA economists Harold Cole and Lee Ohanian which comes to a different view, the JPE is arguably the top academic economics journal in the world. For now there maybe near consensus but maybe this whole area might be looked at again

As for Sweden in the 30's , I dont know what that proves one way or the other, they were a very creative people that had also stayed out of WW1. And to draw lessons from the past , alsolutely you can use a country's "reserves" to create jobs during a depression, but the risk is that you create ineffiencies in the economy which by any reasoning will have knock on effects
As for whats going on now, the USA is several magnitudes in worse shape financially and resourse wise now then in the 1930's , the amount of debt per person/GDP is unparalled so it will be fascinating to see what policies are pursued in the years ahead and how the global markets will deal with this.





http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx


FDR's policies prolonged Depression by 7 years, UCLA economists calculate
By Meg Sullivan| 8/10/2004 12:23:12 PM
Two UCLA economists say they have figured out why the Great Depression dragged on for almost 15 years, and they blame a suspect previously thought to be beyond reproach: President Franklin D. Roosevelt.

After scrutinizing Roosevelt's record for four years, Harold L. Cole and Lee E. Ohanian conclude in a new study that New Deal policies signed into law 71 years ago thwarted economic recovery for seven long years.

"Why the Great Depression lasted so long has always been a great mystery, and because we never really knew the reason, we have always worried whether we would have another 10- to 15-year economic slump," said Ohanian, vice chair of UCLA's Department of Economics. "We found that a relapse isn't likely unless lawmakers gum up a recovery with ill-conceived stimulus policies."

In an article in the August issue of the Journal of Political Economy, Ohanian and Cole blame specific anti-competition and pro-labor measures that Roosevelt promoted and signed into law June 16, 1933.

"President Roosevelt believed that excessive competition was responsible for the Depression by reducing prices and wages, and by extension reducing employment and demand for goods and services," said Cole, also a UCLA professor of economics. "So he came up with a recovery package that would be unimaginable today, allowing businesses in every industry to collude without the threat of antitrust prosecution and workers to demand salaries about 25 percent above where they ought to have been, given market forces. The economy was poised for a beautiful recovery, but that recovery was stalled by these misguided policies."

Using data collected in 1929 by the Conference Board and the Bureau of Labor Statistics, Cole and Ohanian were able to establish average wages and prices across a range of industries just prior to the Depression. By adjusting for annual increases in productivity, they were able to use the 1929 benchmark to figure out what prices and wages would have been during every year of the Depression had Roosevelt's policies not gone into effect. They then compared those figures with actual prices and wages as reflected in the Conference Board data.

In the three years following the implementation of Roosevelt's policies, wages in 11 key industries averaged 25 percent higher than they otherwise would have done, the economists calculate. But unemployment was also 25 percent higher than it should have been, given gains in productivity.

Meanwhile, prices across 19 industries averaged 23 percent above where they should have been, given the state of the economy. With goods and services that much harder for consumers to afford, demand stalled and the gross national product floundered at 27 percent below where it otherwise might have been.

"High wages and high prices in an economic slump run contrary to everything we know about market forces in economic downturns," Ohanian said. "As we've seen in the past several years, salaries and prices fall when unemployment is high. By artificially inflating both, the New Deal policies short-circuited the market's self-correcting forces."

The policies were contained in the National Industrial Recovery Act (NIRA), which exempted industries from antitrust prosecution if they agreed to enter into collective bargaining agreements that significantly raised wages. Because protection from antitrust prosecution all but ensured higher prices for goods and services, a wide range of industries took the bait, Cole and Ohanian found. By 1934 more than 500 industries, which accounted for nearly 80 percent of private, non-agricultural employment, had entered into the collective bargaining agreements called for under NIRA.

Cole and Ohanian calculate that NIRA and its aftermath account for 60 percent of the weak recovery. Without the policies, they contend that the Depression would have ended in 1936 instead of the year when they believe the slump actually ended: 1943.

Roosevelt's role in lifting the nation out of the Great Depression has been so revered that Time magazine readers cited it in 1999 when naming him the 20th century's second-most influential figure.

"This is exciting and valuable research," said Robert E. Lucas Jr., the 1995 Nobel Laureate in economics, and the John Dewey Distinguished Service Professor of Economics at the University of Chicago. "The prevention and cure of depressions is a central mission of macroeconomics, and if we can't understand what happened in the 1930s, how can we be sure it won't happen again?"

NIRA's role in prolonging the Depression has not been more closely scrutinized because the Supreme Court declared the act unconstitutional within two years of its passage.

"Historians have assumed that the policies didn't have an impact because they were too short-lived, but the proof is in the pudding," Ohanian said. "We show that they really did artificially inflate wages and prices."

Even after being deemed unconstitutional, Roosevelt's anti-competition policies persisted — albeit under a different guise, the scholars found. Ohanian and Cole painstakingly documented the extent to which the Roosevelt administration looked the other way as industries once protected by NIRA continued to engage in price-fixing practices for four more years.

The number of antitrust cases brought by the Department of Justice fell from an average of 12.5 cases per year during the 1920s to an average of 6.5 cases per year from 1935 to 1938, the scholars found. Collusion had become so widespread that one Department of Interior official complained of receiving identical bids from a protected industry (steel) on 257 different occasions between mid-1935 and mid-1936. The bids were not only identical but also 50 percent higher than foreign steel prices. Without competition, wholesale prices remained inflated, averaging 14 percent higher than they would have been without the troublesome practices, the UCLA economists calculate.

NIRA's labor provisions, meanwhile, were strengthened in the National Relations Act, signed into law in 1935. As union membership doubled, so did labor's bargaining power, rising from 14 million strike days in 1936 to about 28 million in 1937. By 1939 wages in protected industries remained 24 percent to 33 percent above where they should have been, based on 1929 figures, Cole and Ohanian calculate. Unemployment persisted. By 1939 the U.S. unemployment rate was 17.2 percent, down somewhat from its 1933 peak of 24.9 percent but still remarkably high. By comparison, in May 2003, the unemployment rate of 6.1 percent was the highest in nine years.

Recovery came only after the Department of Justice dramatically stepped enforcement of antitrust cases nearly four-fold and organized labor suffered a string of setbacks, the economists found.

"The fact that the Depression dragged on for years convinced generations of economists and policy-makers that capitalism could not be trusted to recover from depressions and that significant government intervention was required to achieve good outcomes," Cole said. "Ironically, our work shows that the recovery would have been very rapid had the government not intervened."

-UCLA-

SimpleSam06

silverharp wrote: »

the JPE is arguably the top academic economics journal in the world.

Heh.

silverharp wrote: »

And to draw lessons from the past , alsolutely you can use a country's "reserves" to create jobs during a depression, but the risk is that you create ineffiencies in the economy which by any reasoning will have knock on effects

Your concept of efficiency seems to mean "maximising profits regardless of the social consequences, ignoring the overall market environment and leading ultimately to a medieval style stalled and barely productive economy". Laissez faire capitalism isn't the hidden hand of the market, its the unlubed fist of impending corporate feudalism.

silverharp wrote: »

As for whats going on now, the USA is several magnitudes in worse shape financially and resourse wise now then in the 1930's ,

Ironically the situation in the US deteriorated (and by that I mean it began the course of events that left us where we are) at an enormous rate when the regulations put into place to control the flow of capital, the Glass-Steagal act, were repealed. The situation we are in at the moment is not a poster child for less regulation; quite the opposite.

silverharp wrote: »

the amount of debt per person/GDP is unparalled so it will be fascinating to see what policies are pursued in the years ahead and how the global markets will deal with this.

Are you talking about private or public debt here? And keep in mind, it wasn't until controls on banks were removed that things really started to get out of hand.

silverharp wrote: »

http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression-5409.aspx

Just because its economists saying it, doesn't mean its not partisan bollocks. I can throw ten articles back for every one you dig out of the sordid trenches of stateside political point scoring, but I seriously have no time for that nonsense.

And that article failed in its entirety to respond to the points which I made in the last post, in particular the ruinously skewed distribution of wealth, and the fact that half of US citizens were living under the poverty line before the depression even began, plus consistent and sustained growth in GDP and reduction in unemployment brought about by New Deal policies.

Your point of view has been entirely blown out of the water.

book smarts

The general debate in economics at the moment seems to be Keynesian vs Austrian, roughly. Both are wrong. Econophysics is the only area that has showed any progress in years, and even that's not right. Bernanke himself studied the Great Depression and swore it would never happen again...

SimpleSam06

book smarts wrote: »

The general debate in economics at the moment seems to be Keynesian vs Austrian, roughly.

Only in so far as Darwinism vs creationism is the general debate in science, roughly.

book smarts wrote: »

Econophysics is the only area that has showed any progress in years

Yes, the geniuses behind the quants that proved so pivotal to avoiding this economic crisis.

silverharp

SimpleSam06 wrote: »

Your concept of efficiency seems to mean "maximising profits regardless of the social consequences, ignoring the overall market environment and leading ultimately to a medieval style stalled and barely productive economy". Laissez faire capitalism isn't the hidden hand of the market, its the unlubed fist of impending corporate feudalism.

I disagree, you are ignoring the fact that technology moves on and countries rise and fall. I would be hard pressed to name more then a dozen companies that existed from the 19th century and in another 100 years no doubt most household names today will be relics of the past. Corporate feudalism in this context is a strawman argument, work and corpoate structures are changing to rapidly for any dead hand stasis to set in.
My concept of effeciency has more to do with stabilty of the overall financial system in the context of a global economy that is always twisting and turning faster the any centralised authority can possibly control. Also the profits that you dont see to like so much dont exactly go to aliens on another planet. What is not paid out as dividends gets reinvested and dividenda are as likely to end up in pension funds as anywhere else, what is feudal about that?

SimpleSam06 wrote: »

Ironically the situation in the US deteriorated (and by that I mean it began the course of events that left us where we are) at an enormous rate when the regulations put into place to control the flow of capital, the Glass-Steagal act, were repealed. The situation we are in at the moment is not a poster child for less regulation; quite the opposite..

You have moved your microscope too close in here , the repeal of that act happened in the context of a Fed that had demonstrated that it would bail out the system at every little hiccup that came its way. If at the same time you have little regulation and risk insured away in an artificial manner then absolutely chaos is guarantted , even Greenspan got that one wrong.

SimpleSam06 wrote: »

Are you talking about private or public debt here? And keep in mind, it wasn't until controls on banks were removed that things really started to get out of hand..

Both, since the 70/80's there has been an unhealthy increase in non self liqudating debt, this is indicative of a system that is not allowed to self correct or the consequences of artificial growth polcies by big gov.

SimpleSam06 wrote: »

in particular the ruinously skewed distribution of wealth, and the fact that half of US citizens were living under the poverty line before the depression even began, plus consistent and sustained growth in GDP and reduction in unemployment brought about by New Deal policies.

Again you are obsessed with income dstribution in a very young country that was going through massive change. Are you suggesting that by the 1980's people in the IT industry for example would all be on subsistance wages. Recessions come and go, in the US there was one in 1910/11 , 1920/1921 and then the one in 29/30 kicks off. There was no reason why the 29 crash had to last more then a decade, compared to say Japan in the the 1980's alot of the pain was front loaded so no doubt a recovery should have been occuring in the mid 30's anyway.


now for the comedy moment

The Nazi Party newspaper, the Völkischer Beobachter, "stressed 'Roosevelt's adoption of National Socialist strains of thought in his economic and social policies,' praising the president's style of leadership as being compatible Hitler's own dictatorial Führerprinzip."

That has to be up there with the Head of the Zimbabwe central bank praising other central banks for follwing its policies ;-)

Time Magazine

book smarts wrote: »

The general debate in economics at the moment seems to be Keynesian vs Austrian, roughly.

That's not rough, that's wrong.

Econophysics is the only area that has showed any progress in years

That's also wrong.

Bernanke himself studied the Great Depression and swore it would never happen again...

I'll listen to that argument when unemployment reaches 25% mmk?

SimpleSam06

silverharp wrote: »

Corporate feudalism in this context is a strawman argument, work and corpoate structures are changing to rapidly for any dead hand stasis to set in.

Did you miss the fact of half of all US citizens living below the poverty line at the end of the roaring 20s? That is laissez faire capitalism at its finest.

silverharp wrote: »

My concept of effeciency has more to do with stabilty of the overall financial system in the context of a global economy that is always twisting and turning faster the any centralised authority can possibly control.

To be honest at this stage I have no idea what exactly you are advocating. Are you trying to say that industry and commerce should be entirely unregulated, because thats what I'm picking up.

silverharp wrote: »

Also the profits that you dont see to like so much dont exactly go to aliens on another planet. What is not paid out as dividends gets reinvested and dividenda are as likely to end up in pension funds as anywhere else, what is feudal about that?

And again we go back to the state of wealth distribution in the 20's US economy.

silverharp wrote: »

the repeal of that act happened in the context of a Fed that had demonstrated that it would bail out the system at every little hiccup that came its way.

It happened in the same context that naked shorting happened, under pressure from financial executives complaining about "inefficiencies" in the system, words which you are parroting.

silverharp wrote: »

Again you are obsessed with income dstribution in a very young country that was going through massive change.

Not in the least. It was you who decided to make the great depression your primary example of the ills of regulation, not my fault you were wrong. Now that you mention it though, Ireland is a very young country going through massive change. Quite a coincidence, that.

silverharp wrote: »

Are you suggesting that by the 1980's people in the IT industry for example would all be on subsistance wages.

There was no IT industry worth speaking of in the 1980s.

silverharp wrote: »

Recessions come and go, in the US there was one in 1910/11 , 1920/1921 and then the one in 29/30 kicks off. There was no reason why the 29 crash had to last more then a decade, compared to say Japan in the the 1980's alot of the pain was front loaded so no doubt a recovery should have been occuring in the mid 30's anyway.

Bad example there. The asset price bubble in Japan popped in 1990, and its collapse lasted more than a decade, with stock prices bottoming in 2003.

silverharp wrote: »

The Nazi Party newspaper, the Völkischer Beobachter, "stressed 'Roosevelt's adoption of National Socialist strains of thought in his economic and social policies,' praising the president's style of leadership as being compatible Hitler's own dictatorial Führerprinzip."

Yeah, he was best pals with Stalin too, before he invaded Russia. And yet funnily enough, the Nazi-built autobahns are still in use. Once again and I hope finally, I'm not advocating doing everything exactly the same as FDR. The core policies used in all of these recoveries would be great value in this country, however.

Time Magazine

SimpleSam06 wrote: »

I'm not advocating doing everything exactly the same as FDR. The core policies used in all of these recoveries would be great value in this country, however.

I'm not so sure.

SimpleSam06

The Economist wrote: »

[url=]http://www.marginalrevolution.com/marginalrevolution/2008/12/fiscal-policy-a.html]I'm not so sure.[/url]

From the article:

The bottom line is this: we are being asked to believe that a big, trillion or even multi-trillion fiscal stimulus can boost the current macroeconomy. If you look at history, there isn't good reason to believe that.

I would agree in that refinancing the banks in an effort to reintroduce liquidity is a bad idea on an ongoing basis. I would agree that trying to pull FDR part II in the US or Japan is not the best idea, although Obama is attempting to overcome the relatively mature infrastructure issue with major technological leaps (investment in battery tech for example).

I would however juxtapose that against Ireland's third world infrastructure and zero domestic industrial base; we are in a similar position in ways to the pre crash US, or Germany after Weimar. The solutions I am suggesting would not work in those countries or globally today. They are tailored for Ireland.

We are getting into massive public debt regardless, so we may as well something out of it.