Disclaimer. After nearly 40 years managing money for some of the largest life offices and investment managers in the world, I think I have something to offer. These days I'm retired, and I can't by law give you advice. While I do make mistakes, I try hard to do my analysis thoroughly, and to make sure my data are correct (old habits die hard!) Also, don't ask me why I called it "Volewica". It's too late, now.

BTW, clicking on most charts will produce the original-sized, i.e., bigger version.

Saturday, June 9, 2018

A thousand posts!

Source: The role of neoliberalism in Spain's constitutional crisis

When I began this blog 8 years ago, what I really wanted was a place to discuss things.  Well, and vent about them too.  I worked in a place where no one else really understood or cared about economics and there was no one to talk to about the big issues in economics and their interaction with politics.  It was oddly lonely, because everywhere I'd worked before had teams of investment professionals and we'd often discuss economic theory because it interested us, and because to forecast the economy and markets you have to understand them and their dynamics.  And that means understanding where theory is applicable and right, and where and why it's wrong.  I thought maybe with a blog, I'd at least set up conversations even if it was just with myself.  I'd have to consider the facts after finding what they were, think the argument through, then try and write it down in such a way that it appeared simple and logical without being too complicated, because after all, my goal was and is to convince.

It seemed to me then that the big issue in economics was whether the neo-liberal policy consensus was in fact working.  The theory was that increased inequality was a price we had to pay for higher growth.  But the evidence has been accumulating for many years now that growth rates haven't risen as inequality has increased.  In fact, recent IMF and other research suggests that past a certain point--and we have passed that point in the anglophone economies--increased inequality reduces  growth.  And what's the point of economic growth if all the gain goes to the rich?  The neo-liberal belief system also says that markets can be trusted to regulate themselves.  Well, maybe the market in cafés is a perfect market and can be trusted to self-regulate, because in any geographical area there are dozens up to hundreds of cafés, but the market for banks or utilities or airlines isn't.  In fact, most markets are oligopolies, and the theory of perfect markets which underpins the whole laissez-faire approach doesn't apply.

And it became obvious to me that banks in particular could not be trusted.  The GFC (great financial crisis) of 2008 made this abundantly clear.  In the crisis, banks were saved with public money, i.e., money paid by taxpayers.  In Spain and Ireland, the rise in government deficits as a result of this led to swingeing cuts in welfare and rises in taxes hitting the poorest hardest.  The poorest suffered so that bank shareholders and executives could get bonuses.  The third plank of neo-liberalism is that government debt should be low, which logically means that governments shouldn't run deficits.  The problem with that is that when the economy is in recession, attempting to cut the deficit by raising taxes and cutting expenditure can actually make the deficit bigger, because the already weak economy goes even further backwards.   We could all see this by the pathetically slow recovery in Europe after the GFC. 

None of these things are absolutes.  On the whole, markets prolly are better than bureaucratic diktat.  But not always, and certainly not with banks.  Banks need to be tightly regulated.  Governments prolly shouldn't run debts during booms, because that would leave no space to run them when they're needed during downturns. But they should during recessions.  And borrowing money to acquire long-lasting assets like roads, railways, hospitals, power stations, etc, is perfectly sensible and useful.  Obviously people who work hard or are massively creative (Elon Musk, for example) should earn more than hoi polloi.  But ever increasing inequality is bad not just for economic growth but also for democracy.  Sharply economically divided societies are also going to be sharply divided politically.  Hungry and angry people aren't interested in polite disagreement and live and let live when they see the rich getting ever richer.  The rise of extreme right-wing parties is dangerous for democracy, just as extreme left-wing parties were.  Getting poor people to vote for right-wing policies is hard.  So right-wing parties have to manufacture "enemies": Mexicans, immigrants, gays, foreigners, dole bludgers (who "parasite" on ordinary folk)  It's a technique which manufactures and disseminates hate.  That's bad for society and for democracy.

The problem was and is that advocates of neo-liberalism are in the grip of quasi-religious belief system.  If you point to the failures of modern capitalism and neo-liberalism, they counter that we haven't got enough deregulation, we haven't got low enough taxes, we haven't cut welfare enough to increase the incentive for the poor to work harder, while if there is a deficit, we should run a surplus to release more funds for private enterprise which is always (they say) better and more efficient than governments.

Over time, I started to get more and more worried about climate change.  Global temperatures have been  rising on average by 0.2 degrees C per decade since the 1970s.  That means by 2050 they will have risen another 0.6 degrees, at least, because it is highly likely that aerosols (i.e., sulphate particles) released during the burning of coal and oil have hitherto limited that increase.  As we slash coal burning with renewables replacing coal, sulphur dioxide emissions will fall, and this will cause temperatures to rise even more rapidly.   Even 0.2 degrees C per decade is frightening enough.  ).3 or 0.4 would be terrifying.

It's perfectly obvious that global temperatures are rising and that is us making that happen.  The right-wing obsession with neo-liberalism leads to climate denialism.  Climate action is collective, right?  We all have to do our bit.  We have to agree to take action, all of us, because it's no good me cutting emissions if you increase yours.  The Right thinks that's tantamount to socialism.  Plus, you know, markets are always right.  If people want to burn oil and coal, let them.  The increasing economic and political division in developed economies which was a direct result of neo-liberalism made action to prevent or reduce global warming even harder.  The Right was against it simply because the Left was in favour.

I have tried to present the facts on climate change/global warming without blaming the Right for everything.  Unfortunately, my contempt for the Right has risen over time as it has become obvious that far from being genuine conservatives (who are supposed to conserve) they have devolved into semi-fascist bullies who spend a lot of time denying indisputable facts.  Don't get me wrong.  The Left is deeply flawed.  But climate change is the greatest crisis facing our civilisation.  And the Right doesn't want to do anything about it.

To leaven the serious articles I put in cartoons that I like.  Sometimes they're funny, sometimes not.

Anyway, thank you all for reading it.  I hope my next thousand posts will be as interesting.

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