Will the 2010's be the new 1930's?

[Marla_Singer]

for those who thought debt-financed growth was primarily a US phenomenon, please look at this:

http://www.economist.com/blogs/dailychart/2011/07/world-debt-guide

the private debt-to-GDP ratio, which is an indication of the amount unproductive (i.e. non-GDP raising), unsustainable credit being used for speculation and consumption purposes, is generally higher in Europe and Japan than in the USA.

although it's true that most European countries had far less severe housing market declines than the USA, a lot of the securities that went bad under influence of the US' housing bubble bursting were in possession of European banks.

European banks have since 2008 had far worse leverage ratios than their US counterparts.

Well, accumulating debts this way doesn't really make sense if you don't take into account savings too. For instance, most of Japanese debts is financed by Japanese savings. As such, it's mostly a domestic affair and rather harmless for the country internationaly speaking.

On the other side, in the US everyone is indebted. Not just the government, but also households, corporates, states, everyone. There's just no economical actor which is a net saver.

 

[Marla_Singer]

Just some figures:

Savings as % of disposable household income (2011):
- Spain: 17.0%
- France: 15.2%
- Switzerland: 14.7%
- Germany: 11.4%
- Britain: 5.4%
- United States: 3.6%


Source:
http://www.gfmag.com/tools/global-d...396-household-saving-rates.html#axzz1dYFiiiE1 (OECD)

 

[Tahuti]

You don't grow an economy only with R&D, financials and retail. None of these activities exist if there's no production first.

There is production, it just isn't in the same location where the R&D and services are.

You need first to produce stuff in order to finance R&D, you need factories to get a return on investments consented in financial markets, you need workers producing stuff in order to spend money in retail.

These "workers" will be employed. Just not in production, but in services. However, in order to prevent unemployment, you will need them to teach the necessary skills to be able to work in these sectors of course.

If all the production is done overseas, then you import more than you export, then you can't collect taxes to finance government activities, then you're forced to indebt yourself in order to continue to fuel the economy.

That's nonsense. People still work, run businesses and consume and all these things are taxed. Plenty of tax revenue. Besides, China doesn't owe its low debt rate to the fact it is a production economy, but more the other way around. If you really insist on having a developed economy with a large industrial sector without suffering deadweight loss (as a result of import tariffs), your best shot will be to reduce government debts and use the money you'll safe to buy treasuries of indebted countries that are despite this are a likely export market (like the US, for instance).

And while the Western world is digging its debt hole, Asia is building a solid economy on which they can grow R&D, financial services and retails. They don't need us to do this you know.

Once every country in the world is developed as in the West, it is inevitable that a large industrial sector will return to the West. After all, no extra profit can be squeezed from cheaper labor, so it will be cheaper to produce closer to where the produce is bought.

It's a mistake to think that you can have a country focus on industries and have a successful economy. Instead you should have policies for general success, and then let the markets do the specifics.

Wasn't it the opposite? Let the market do its work and then have the government correct any rough edges it might have?

 

[Cutlass]

Wasn't it the opposite? Let the market do its work and then have the government correct any rough edges it might have?
_

Not really, no. The government set a series of rules that the markets worked within. And then they went off and did their own thing. Only when the government ceased to set rules did the system come apart at the seams.

The US is far too large and too diverse for the government to pick winning industries. And that system rarely works in the first place.

 

[Tahuti]

Not really, no. The government set a series of rules that the markets worked within. And then they went off and did their own thing. Only when the government ceased to set rules did the system come apart at the seams.

The US is far too large and too diverse for the government to pick winning industries. And that system rarely works in the first place.

Well, that is just a matter of perception then. When the government regulates industries, I'm prone to view it as smoothing rough edges.

But I agree with you that the government is unable to pick any winning industries. That said, government can do some things or two to intellectually equip people for whatever industry the markets consider the winner.

 

[Winner]

It's already looking like 1930.

Is it? Because I don't see the unemployed masses starving in the streets... Nope, looked out of the window, nothing.

Compared to the 1930, every civilized country now has a developed social security net. Otherwise the unemployed would be begging for bread crumbs instead of posting comments on an internet forum.

That isn't a really a "problem". The West needs to adjust by stopping educating workers for professions that can be performed much cheaper elsewhere. Instead, Western countries should focus on that the West has a comparative advantage in, such as R&D, financials and retail. By accepting outsourcing, Western countries can further expand its comparative advantage in the aformentioned areas.

That's only partially true. As I said many times before, giving up on industries would be suicidal. Which economy in Europe has done better than the rest, so far? Germany. Why? Because it still relies heavily on industry.

Of course we need to get smarter about it - subsidizing low-tech industries (and agriculture) just to keep them afloat makes little sense. However, accepting outsourcing of everything tangible as the way forward seems like a road to hell to me.

 

[Cryptic_Snow]

Paul's policies will make things much worse if enacted. In fact, if you were to design policies to make things worse, you would do what Paul would do.

Balanced budgets, reversing our debt crisis, and advocating peace before warfare abroad would make things worse? Seriously?

 

[Cryptic_Snow]

You are drowning in Kool-Aid, good sir. Quick! Let me throw you a life preserver!

*tosses out a World History book attached to a rope*

If we're drowning in anything, its State propaganda. The History taught in schools today needs a salt bath.

 

[useless]

If we're drowning in anything, its State propaganda. The History taught in schools today needs a salt bath.

Well tell us, what is your remedy to this problem?

Abolish the State-based educational system?

 

[Cutlass]

Balanced budgets, reversing our debt crisis, and advocating peace before warfare abroad would make things worse? Seriously?

And what will he do to accomplish that? His policies, as outlined on his campaign website, would not in any way approach doing that. All he plans to do is strip away more of the earnings of the middle class in order to fund more welfare for the wealthy.

And while there is some justice to his objections about US foreign policy, isolationism is not in the interest of the US. And would make us all worse off in the long run.


Not to mention that his insane plan to end the Fed and destroy sound money and monetary policy would ruin the American economy for as long as it took to recreate the Fed and get it functioning again.

 

[Traitorfish]

If we're drowning in anything, its State propaganda. The History taught in schools today needs a salt bath.

Would you care to elaborate? "State propaganda" is, in itself, a more or less meaningless term.

 

[Pangur Bán]

2nd law of thermoeconomics, the logic of globalization as it is idealized, would make Western workers equal in wealth to Indian, Chinese and African workers. This is also why our current model of globalization is doomed ... the US and Europe won't actually let it happen if their dumb populations get to grips with reality before their elites detach themselves from all national interests.

These populations are beginning to get to grips with it already.

Our exploitation of third world peoples will probably need a new ideological dress; there will maybe be more wars for a bit; but so long as the military power is in the West that's where the economic power will stay. At the end of the day, debt and property need to have the consent of the most powerful to mean anything. Otherwise they are meaningless paperwork easily burned or transferred.

Once every country in the world is developed as in the West, it is inevitable that a large industrial sector will return to the West. After all, no extra profit can be squeezed from cheaper labor, so it will be cheaper to produce closer to where the produce is bought.

You realise the problem, here, right? Stuff will be bought where the wealth is, and if it is not in the West things won't "return" to the West.

 

[Tahuti]

That's only partially true. As I said many times before, giving up on industries would be suicidal. Which economy in Europe has done better than the rest, so far? Germany.

Correct. Though Sweden and the Netherlands would make fine examples for Europe too.

Why? Because it still relies heavily on industry.

No, because Germany is a net-saver. Being a net-saver also happened to keep its Industrial sector intact, but that's unrelated to why Germany is both a net-exporter and doing so well. China is a strong industrial power and growing fast for the practically the same reason.

You realise the problem, here, right? Stuff will be bought where the wealth is, and if it is not in the West things won't "return" to the West.

You imply Western wealth will disappear, but how?

 

[GenMarshall]

Is it? Because I don't see the unemployed masses starving in the streets... Nope, looked out of the window.

I doubt looking at the streets of Brno has any bearings on what goes on in the United States or any other nation with rampid unemployment .

 

[Pangur Bán]

You imply Western wealth will disappear, but how?

Not at all. You do. In your scenarios [parts of] the non-west gets rich and achieves parity with the west.

Remember also that the West's "wealth" is largely depended on the rest of the world being poor, dominated and exploited by us and our institutions. If the rest of the world gets "richer", the West must get poorer (at least in terms of access to all finite resources).

 

[luiz]

Not at all. You do. In your scenarios [parts of] the non-west gets rich and achieves parity with the west.

Remember also that the West's "wealth" is largely depended on the rest of the world being poor, dominated and exploited by us and our institutions. If the rest of the world gets "richer", the West must get poorer (at least in terms of access to all finite resources).

In constant dollars, the the world as a whole got more than twelve times richer (per capita!) since 1970. Most of the growth came from the poor world. Did the West get poorer because of that? It's not a zero sum game.

BTW, nice to see you around, calgacus. Do you live in Albania now? And how come your politics shifted so much over the years?

 

[ZeletDude]

I doubt looking at the streets of Brno has any bearings on what goes on in the United States or any other nation with rampid unemployment .

I live in the US and I don't see masses of them either.

 

[innonimatu]

I didn't even notice the signature and was wondering "where did this likable new cynic came from?" Calgacus, of course! I don't think you shifted at all.

 

[Pangur Bán]

In constant dollars, the the world as a whole got more than twelve times richer (per capita!) since 1970. Most of the growth came from the poor world. Did the West get poorer because of that? It's not a zero sum game.

This kind of thing doesn't mean much. 2nd law of thermoeconomics! There is only so much oil, so much water, only so many people can be the slaves of anonymous masters in far off lands. Only so many people can be masters of such slaves. At any one time there is only one finite pie, and in relation to that, it definitely is a zero sum game. Economics, when all is said and done, is just a language for social relations.

BTW, nice to see you around, calgacus. Do you live in Albania now? And how come your politics shifted so much over the years?

Thanks. Albania is an old Latin word for Scotland. The number of people who elsewhere have attacked my "backward eastern european" country in discussions is amusing ... worth using this name just for that.

And how come your politics shifted so much over the years?

Good question. I forget I used to be on the right ... and now it must look like I'm on the left.

I didn't even notice the signature and was wondering "where did this likable new cynic came from?" Calgacus, of course! I don't think you shifted at all.

Luiz is right though ... way back. Back in 2003 I even got given membership of a secret spin-off discussion group used by right-wing cfc members.

 

[Neonanocyborgasm]

Well I don't want to sound catastrophist, but most economists agree that the worst of the crisis is still ahread.

Even if one surmises this, there is no way that a replication of the Great Depression is as possible. 80 years of economic experience and repair is likely to mitigate against such a disaster. It is true that (economic) history often repeats itself. It's remarkable how quickly people forget the lessons of even recent history. But this assumes a level of ignorance that seems hard to believe even for human nature.

Furthermore, it would be good to see the thing as a big picture. The 1930's aren't only about misery in the US. It's about the conquest of Manchuria by Japan, about the civil war in Spain, the raise and expansion of Hitler, and more than everything, a weakening of democracies.

And we have yet to have these types of crises as well. So far, the only event of note is the Arab Spring. I am open to the possibility of other "bad things" happening, but so far the insanity has yet to reach that level.