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Historic Grumpiness

from Peter Radford

I am not sure how to react to the drift of events. It seems as if our leaders, both here and in Europe, are determined to re-create the Great Depression. I guess it must have been fun the first time through. Why else would they be so steadfast in their lunacy?

We live in absurd times. We are lead by fools. Our commentariat is stupid, ignorant, badly educated, or simply to darned lazy to pick up a history book. It surely isn’t difficult. Even I can do it. 

Boy, am I grumpy.

I crossed the line today when I came across a piece in the Washington Post by the now less than notable – in my mind – Robert Samuelson. His article attempts to provide a critique of Keynes. The conclusion being that Keynes would repudiate Keynesian policies in the supposedly debt ridden world of today. You can read the article yourselves, I am too annoyed to provide a précis here. Suffice to say Samuelson succeeds only in displaying his ignorance both of Keynes and of recent history.

His argument is, as my father would say: utter tosh. Twaddle. Of course it doesn’t help my distemper to have spent the prior weekend re-reading Minsky, but let that pass.

We are living through an epic repudiation of classical economics in all its varied guises. In my more aggressive moments I wish that the Swedes, or whoever it is that doles out the faux Nobel prize for economics, had a recall button. The embarrassment of an entire generation of economists is on display before us, but instead of a scientific reaction – a healthy change of mind in view of their failure – we are being subjected to a petulant, nay petty, rearguard action wherein the orthodox true believers throw hissy fits of hate against the one theoretical construct that has, with flying colors no less, stood up against that facts.

Keynes has been vindicated. Not repudiated. Knowing as we do that Keynes was hardly a shrinking violet and was certainly not too shy to claim righteous victory for his ideas, it would shock me to the core to hear or read him walk away from his theories in their time of victory.

Have I made myself clear?

Whatever flavor of Keynes you adhere to, and this is not a moment to parse them apart, the basic constructs have supplied us with both analytical power to explain events, and policies to improve our lot or to solve our problems. That our leadership cannot or will not embrace those policies is a source of frustration for all those advocating them. Ideological blocks are preventing us applying the cure. But that we know the cure is clear.

Let’s get this straight:

  1. Printing a wad of money right now will not have an impact on inflation. Evidence: it hasn’t yet, despite the torrent of money flooding into the economy. Last Friday’s inflation numbers showed core inflation of 0.2% – the upward spike in commodity prices from earlier in the year are still rumbling through the system. Headline inflation was flat. Flat. Narry a surge in sight. Not one whit of hyperinflation. So, why I wonder, are we still warned that inflation is “just around the corner”and that all that money will absolutely throw us into a Weimar style disaster? We have been thus warned by the hardliners for three years straight. They have been utterly wrong. Also for three years straight. After all that error one would have thought a little introspection is called for along with a modicum of contrition. But no. We get the same argument trundled out one more time. At some point inflation will certainly rise, and, like the proverbial broken clock, I assume they will claim victory for their falsified idea.
  2. More evidence: throughout this crisis we have been told that the markets, vaguely defined as creditors holding sovereign debt, will run for the hills as the debt issued to fund deficit spending piles up. Just you wait, argue the hawks, interest rates are about to rocket skyward and we will not be able to fund ourselves any longer. What happened? US rates have fallen. They are low. Very low. Creditors are falling over themselves to buy US debt. Somehow they don’t seem to worried. They are running towards, not away, from the US Treasury. OK, say the hawks, how about those Europeans? They seem to be having funding difficulties. Yes they are. But not because of poor fiscal management. The markets are not scared of the debt. They are scared of the the pickle that a poorly integrated fiscal union is having. Countries with balance of payment problems – Spain for example – cannot adjust their economies when they remain locked with others with the exact opposite imbalance. So they have to throw themselves into austerity measures far more draconian than the original problem required. And, let the record show, the Spanish were paragons of fiscal rectitude before the crisis, they were not spendthrift. Not at all. Instead, the Euro is acting in the same manner that the old gold standard did. Anyone tethered to it is suffering. External adjustment is not possible, so all the adjustment has to be made within. That means lower wages, deflation, and recession. In turn this means paying off debt will be more, not less difficult. Austerity leads to contraction no matter how you spin it. And, anyone with even a smidgeon of historical awareness knows that, back in the 1930′s, the countries that abandoned the gold standard early were also those who recovered early. They were unshackled and could adjust. Thus the UK recovered well before the US or France, despite its similar problems. Heroic austerity is simply another description of stubborn self defeating folly.
  3. This latter point deserves to stand by itself: austerity is just that. Austerity. Slashing away at government spending reduces the economy in the absence of any offsetting private sector expansion. And the very reason that debt-to-GDP ratios have spiraled upward is because GDP has slumped while safety net spending has kicked into prevent a free fall. Economies can get stuck in a vicious squeeze when this happens. The response should not to be to dig the hole deeper, but to keep the cash flowing in order to buy time for the private sector to work out its kinks. If those kinks are debt related then the time needed – and the cost – will be accordingly high. In other words we need to induce growth, not suffer some latter day purgative episode of indeterminable length. This not a moment to savor a self inflicted bout of moral scourge and cleansing, but to find ways to re-build. That can take debt. Lots of it.  Meanwhile countries that implement austerity are all, without exception, suffering unnecessarily. Unemployment has erupted wherever austerity has been applied. Imbalances are moving in the right direction, but only modestly and at great human cost. Apparently the people of Ireland are more aware of the truth than the hawks, they are voting with their feet. Irish emigration has shot up during the years of austerity. Meanwhile the Irish economy is shrinking, unemployment has reached about 15%, and all the indication is that the pressure is building not easing. The voters suffering at the sharp end of economic policy know better than those developing the policy. Austerity doesn’t work.

Thus, when we come across an article such as Samuelson’s we have to shudder at the enormity of its ignorance. Or it’s author’s willingness to avoid evidence. In polite company we don’t refer to it with the language it deserves. Elsewhere is another matter.

History will not treat kindly those who refuse to learn from this crisis. Millions of lives are being ruined because of a stubborn adherence by poorly educated experts and leaders to a set of ideas that have been totally falsified by events.

And those defunct ideas are not those of Keynes. Far from it. His ideas are still standing.

Capitalism, oh horror, turns out to be riddled through with internal weaknesses. Markets are not always self correcting. And, in honor of Minsky, the financial world is endemically unstable. Indeed the very strengths – don’t laugh, there must be some somewhere – of our banking system condemn it to periodic failure. Disruptions in one market can, indeed, leak over into others. Wages are sticky. Heck stuff happens – uncertainty really, really matters. The list goes on.

The list reflects reality. The list reflects Keynes. Or, rather, Keynes understood the list. Which means, for all his obscure writing and occasionally vague explanation, Keynes understood reality.

Which is why his ideas work. Which is way more than we can say for the other folks.

History. Facts. They can make you grumpy.

  1. December 27, 2011 at 1:30 pm

    If you look back to the history of the UK economy from 1945 to 1974, it is evident that Keynesian policies, as they were applied (and that is an important qualification) did not work in the long term, in which, as Keynes said, we are all dead. Only we are not.

    Kenynes’ analysis of the economy is mathematical, lacking an underlying mechanism and lacking a coherent theory of taxation. Post Keynes, mainstream economics has led us all into the present catastrophe. The only coherent analysis of what has been happening is given by Henry George, long forgotten by most, and by those who have built on his work, in particular, Brian Hodgkinson who wrote an important book called “A new model of the Economy”, published by Shepherd Walwyn.

    Some of the most cutting insights on the present situation have emerged from the School of Economic Science in London (not to be confused with the London School of Economics).

  2. Robert R Locke
    December 27, 2011 at 2:00 pm

    If I remember my history correctly, except for the slight and limited example of Keynes, orthodox ecnomics reacted to the Great Depression much like they are doing now. Austerity that intnsified the downward spiral. There must be something in the locoweed they are smoking that stops them from thinking.

    • December 27, 2011 at 3:01 pm

      Keynes became the orthodoxy. The policy was applied and had run into the sand by 1970 and then we got monetarism. Keynesianism is fundamentally flawed. All the orthodoxies are flawed.

  3. December 27, 2011 at 4:01 pm

    Austerity is one of the measures that has contributed to the very rich getting super rich. We have been preached at by the economic priests: to practice austerity, fight inflation, discredit governments and the civil servants amongst many other indicators. Two things (at least) have happened in most western countries. Debts have climbed and the wealthy have grown hugely more wealthy! All since Friedman won the faux Nobel prize!

    • Alice
      January 3, 2012 at 6:03 am

      Friedman – the conservative servant of the wealthy masquerading as an economist? You mean that Friedman. The one who thought the wall falling in the Soviet union would fix all…as it would have at that time…but who then went on to make the most monumental fallacy of composition…that all walls of government intervention falling would be good everywhere (and to be fair maybe Friedman didnt go that far but his offspring certainly did).

      Friedman – friend of the wealthy and powerful, friend of rapidly rising inequality, friend of the internal destruction of middle class America (notice how those countries who now have a developing middle class are getting stronger? Like China?).
      Notice how weak America is looking? So Friedman shared the views of many conservatives that it is only the wealthy entrepreneurs that have the sole ability to trickle down and therein the fundamental error – by freeing them, everyone would be made better off (rising tide bla bla)

      Not so. It was a healthy middle that traditionally trickled down to the poor – without a healthy middle there is insufficient trickle down and no protection for the poor – we see this now in the US and in many Euro nations.

  4. December 27, 2011 at 7:25 pm

    Peter Radford: “Printing a wad of money right now will not have an impact on inflation. Evidence: it hasn’t yet, despite the torrent of money flooding into the economy.”

    That should be no surprise!

    Base money is credit for legal tender physical cash from the central bank. Base money only exists as physical legal tender cash and as credit for legal tender cash from the central bank. Accounts at the central bank are used to settle balances between member banks.

    Unless base money is put into circulation in the form of physical cash, base money does not even enter the economy never mind “flood” it. If and when it becomes the basis of increased commercial bank borrowing, then monetary inflation, by means of increased total debt to banks, can happen. As long as borrowing from commercial banks remains suppressed, base money will have no effect other than to save the banks books from showing insolvency.

    Trying to stimulate the economy by creating more base money is like pushing on a rope.

  5. apj
    December 27, 2011 at 10:38 pm

    Paul, you had it right first time – “Accounts at the central bank are used to settle balances between member banks.”

    Base money doesn’t seep into circulation, however (ie. become the basis for increased commercial bank lending). Ever. This is one of the fundamental relationships that is still badly misunderstood, because it suggests that banks are reserve constrained, which they are not. Krugman still seems to believe this, strangely, arguing your point that it’s only because of the economic situation that reserves aren’t being “lent out”. Banks don’t require reserves prior to making the lending decision. Reserve maintenance comes after the lending decision. Even the ECB understands this now. The Fed and BIS also have excellent insights into this. And yet, the idea persists. But it’s changing, thank goodness.

    Every person who questions me about this I ask the same question : how did such a monumental credit bubble exist based on such a low level of reserves (USD 43bn as late as 2007, and on a declining trend), only for reserves to be many times that figure now with no effect? The answer is obvious.

    • merijnknibbe
      December 28, 2011 at 11:49 am

      The weird thing: ECB (double entry accounting) statistics on money growth do show this point, every month, and are and always have been entirely consistent with this very idea.

      There seems to be a rift within the ECB between the (neo-classical) economists analysing the economy and constructing the models on one side and the professional economists in charge of the statistics on the other side. Mind what Apostolis Serlestis, a hard core neo-classical economist, says about neo-classical economics and statistical data produced by Central Banks like the ‘flow-of-funds’ and the ‘double entry accounting’ data on money creation on one side and debt creation on the other side (of the balance sheet):

      “The problem is that the Federal reserve and other Central Banks have not been producing data consistent with neo classical micro-economic theory”. I would put it the other way around but: indeed.

      Serletis, A. (2012), ‘Foreword. Macro-economics as a science’ in, Barnett, W.A.’(2012), Getting it wrong. How faulty monetary statistics undermine the Fed, the financial system and the economy, p. XXI.

      P.S. – as Dirk Bezemer states:

      “accounting (or flow-of-fund) macroeconomic models helped anticipate the credit crisis and economic recession. Equilibrium models ubiquitous in mainstream policy and research did not”

      Bezemer, D. (2009), ”No One Saw This Coming”: Understanding Financial Crisis Through Accounting Models”, MPRA Paper No. 15892, http://mpra.ub.uni,muenchen.de/15892/1/MPRA_paper_15892.pdf

      The irony: people like Koo prove people like Frank Smets, chief economist of the ECB, wrong by using the very statistics which the ECB itself produces…

    • December 28, 2011 at 7:38 pm

      reply to apj:

      In my movie, Money as Debt, I summed up the banking system in one sentence that usually stuns people: “Banks can lend as much money as we can borrow.” The ultimate truth of this is that “we”, in the form of federal government debt, require ZERO “loss reserves” according to the Basel Accords framework.

      But I think, in your comment, that you are overlooking these same Basel Accord capital adequacy requirements for non-federal credit creation, which are usually 4-8% of total credit exposure. As I understand it, a bank that is in debt to other banks has to count that debt against its Basel Accord capital adequacy assets. Therefore an infusion of taxpayer-funded base money into a troubled bank’s central bank account, allows it to eliminate these inter-bank debts. In turn that frees up the “capital adequacy” that was previously committed to those inter-bank debts. Thus freed up, the bank MAY increase its retail lending and stay within the Basel Accord framework.

      BUT… none of this produces any demand for that lending. If there is no demand for money creation loans there is no new money creation.

      The same goes for base money “legal tender physical cash”. Creating more credit at the central bank for legal tender on demand, does not create more legal tender cash on the street, unless we withdraw our accounts in cash.

      The recent huge increase in base money not only rectifies the balance sheets to make the banks solvent again, it puts in place, in advance, the central bank credit needed in case the public decides to make massive cash withdrawals from the commercial banks.

  6. December 27, 2011 at 11:34 pm

    Robert Samuelson, like his namesake Paul Samuelson, does not and has not ever understood Keynes. In my 2009 book THE KEYNES SOLUTION:THE PATH TO GLOBAL ECONOMIC PROSPERITY, I document with Paul Samuelson’s own recorded words that he [Paul Samuelson] found Keynes’s General Theory “inpalatable” and incomprehensible — so PaulSamuelson merely “assumed” that Keynes’s analysis was a Walrasian system with fixity of wages and prices.

    Thanks to that great American neoclassical synthesis Keynesian, Paul Samuelson, how many economists learned this as the Keynesian Revolution — a classical system with fixity of wages and/or prices?

    No wonder Robert Samuelson knows nothing about Keynes — nor does Alan Greenspan, etc.

    Paul Davidson

  7. Alice
    December 28, 2011 at 12:37 am

    Well here goes again – I get three quarters through my post and I get erased by an invisible hand….
    Peter nails it again. Ive been grumpy for years. All the world of economics since Keynes, when it comes to active policy (or should I say disturbingly inactive policy) is full of idiot savants who have spent their lifetimes trying to knock Keynes off his perch. Talk about a jealous bunch. The legacy of Keynes is that he was so good he inspired generations of economists after who aspired to outsmart him and in so doing lost his wisdom…and here we are, the victims of all the Johnny come latelies bizarre experiments. Grumpiness at mainstream economics now endemic and extends well outside the profession.

  8. December 28, 2011 at 4:31 am

    I agree that our leaders seem determined to recreate the Great Depression and that they need to re-read their Keynes. But the world has changed since Keynes or at least his conception of the state has changed. It is no longer the benevolent ‘for the people’ state but very much ‘corporatised’. Rediscovering Keynes is fine but how do we rediscover that benevolent state? Is the failure of our ‘leaders’ to see the relevance of Keynes not a result of that corporatisation of the state?

    Peter Radford writes: “We live in absurd times. We are lead by fools.” Yes but why? Do we not have to answer the question:”Who do they seek to serve?”

  9. Mike Meeropol
    December 28, 2011 at 6:52 pm

    Paul D. is so right on the “neo-classical synthesis”. I constantly had to tell my principles macro students that the text was WRONG about Keynes and then introduce the simple paradox of wage cutting to show that falling wages does NOT re-establish so-called “full employment” equilibrium.

    Why our leaders persist in being seduced by the austerity lobby is a question for political economy — maybe the top corporate executives believe that they can always sell their products “somewhere else” — say to a rising Chinese middle class — if American workers have exhausted their consumption capabilities.

    Again, Keynes had it right when he argued that the world could not export its way out of recessions —

    It may finally be time to talk about the “S” word — that capitalism truly has reached the end of its growth possibilities — or at least will once China has 1 billion people living at mid-20th century standards of living (by which time the temperature of the earth will have risen 3 degrees C and our grandchildren will be confronted a much worse crisis than was even imagined back in 1971 when the Club of Rome made their doomsday predictions).

    Talk about grumpiness …

  10. December 29, 2011 at 5:51 pm

    Thanks to one & all. I hope the following summary inspires a serious critical review of the whole of my new Fundamental Theory of Economics (a truly modern update). Who knows, it may inspire some new hope, renewed enthusiasm, proactive diligence, and a realization that economics need not be the same old “dismal science” the Scrooges of the world have made of it…?

    Awareness & Value :: Concluding Summary

    Dr. Jared Diamond was right (see his book “Collapse: How societies choose to fail or succeed”), civilizations that failed and fell in the past, chose a devolutionary decline in collective wisdom that caused ever worse decisions. Without a fundamental appreciation of natural values and viable ethics, there is no way to sustain socioeconomic validity, general equity (commonwealth), cultural integrity, healthy viability and justice. Without appropriate appreciation of life and justice, realistic consideration and a culture worth sustaining are impossible.

    The global economy is a unified field because human culture is now a unified field and because the universal law of interdependent interaction is a reality. With so many of us living here, what some of us do in one part of the environment affects what happens elsewhere, with detectable, measurable effects. However primitive or sophisticated, we all do what we do because we want to be fulfilled, healthy, safe, comfortable, happy, and free, self-determining. Humans, like other animals, want to eat, drink, sleep, play, and sometimes mate, raise children, often striving for the happiness and fulfillment of their children. The basics of human life are intricately interwoven with the basic principles that make economies and economics possible and viable.

    For some of us, the need to think that we know the truth about the world or reality becomes an obsessive passion, for some to the extent of fanatic zeal or psychosis. The flip side of that extreme obsession is often neurotic or psychotic denial of whatever seems to threaten our sense of knowing what is real. Nothing tends to inflame such obsessive-compulsive extremes more than real or imagined threats to our sense of economic reality and financial sustainability. Hence, nothing is much more aggravating for about 99% of conscious adults than witnessing systematic devastation of the economy and the quality of life.

    In the realms of science, considering part of the basics is insufficient. In the days of Smith, over 95% of people were farmers, primitive pastoralists or indigenous hunter-gatherers. The great thinkers and pioneers of economics, from Smith to John Maynard Keynes, could not predict or conceive of the complications and machinations of a global plutocracy with 7 billion victims addicted to technology. Keynes may have been more intuitive or more cognizant of exponential potentials, but not today’s realities nor the worst probabilities of tomorrow. None of the pioneers or ideologues fully explored the entire scope of economics or expressed all the fundamentals. That core deficiency enabled the tumorous growth of plutonomics and the rampant lack of ethics ruling the realms of commerce, politics, and academia.

    Economics must deal with all cultural activity, motivations, and the socioeconomic paradigm as is. Appreciation and value are the inseparable interdependent essentials of cultural activity and economic exchanges. Subversion and cheating degrade economies, cultures, and paradigms.

    Without understanding the nature and importance of appreciation and value and the other generative, functional principles of viable cultural interaction, we have no way to understand an economy and its governing dynamics. Nor could we practice valid economics or understand a socioeconomic paradigm. Without clear recognition of all the positive and negative factors and dynamics we lack the basis of comprehensive understanding. Then how could we perform effective study, analysis, assessment, or remedial action?
    Though modern economists work with money, credit, and cultural activity on a global scale, the basics are ever present necessities, the psychosocial infrastructure of economics. There is clearly no excuse for ignoring the basic realities of human weaknesses, vices, values, beliefs, attitudes, intentions, motivations, emotions, reactions, limitations, associations, habits, and potentials of all the causes and contributing factors combined. Of all the factors that typically affect economic activity and trends, our values, beliefs, weaknesses, limitations, and habits are the most critical determinants. We are creatures of habit, with limitations and imperfections that make us highly susceptible to confusion, deception, corruption, systematic exploitation and indiscriminant destruction. In this thoroughly corrupted commercial economy (plutonomy), our confusion about money is the root of most other evils.

    Paradigm repair, remedial education, and ethical reform are prime duties of all real economists. We must make the basics simple, easy to grasp by kids, parents, teachers, elders, and politicians. Here are the basics of money and credit:

    1. Value: A subjective conception of whatever is appreciated or considered as being of benefit or virtue; a personal conception or belief that is either 1) natural or 2) socially derived and arbitrary.

    2. Wealth: A great accumulation of value or goods, “material” abundance, potential or capability, great affluence (flow, liquidity, solvency & currency), great capacity for cultural interaction and beneficial exchange of goods, services, or assets (actual or symbolic benefits or objects of value).

    3. Credit: A form of positive recognition and acknowledgement of merit and trust, positive value, benefit, potential and/or contributions to life, culture, and the future.

    3. Money: Primarily a socioeconomic system and a symbolic medium of exchange, a system of socioeconomic abstractions. Money as media serves as a 1) convenience for the exchange of goods and services, 2) measure of relative value, and 3) as a store of value.

    4. Economy: The total “material” activity and interaction of a social group, a community, state, nation, or civilization, specifically either 1) nonmonetary cultural interaction and exchange or 2) monetary commercial interaction and exchange.

    5. Commonwealth: Commonly shared cultural wealth; the productive, constructive activity of communities that make up a state, nation, culture, or civilization.

    6. Poverty: A state of degraded existence, enforced deprivation, insufficiency, or inability, usually created, perpetuated, and enforced by a corrupted commercial economic regime.

    As long as ecocide, corruption, and other degrading, anti-social activities are considered acceptable means for generating profit, for-profit government and debt money will rule, and both economics and modern civilization are doomed. Human culture is as much or more about attitudes, ideas, and beliefs that cause our behavior as it is about the effects, the results. Without considering the importance and effects of religion, spirituality, values, ethics and justice, we cannot study or practice economics. If it remained a muddled, self-contradictory excuse for plutocratic con games, economics could never be valid, of real benefit to humanity, nor could economists be responsible, responsive citizens, playing a positive role in sustaining civilization.

    Without a healthy, biocentric socioeconomic paradigm there can be no healthy, sustainable alternative to commercial exploitation as usual. Neither the socioeconomic paradigm of plutocracy nor its systemic corruption will ever turn into their opposites. Plutonomy and corruption are caused and perpetuated by people, committed players convinced of the superiority of their own favorite illusions, notions, obsessions, possessions, goals, strategies, tactics, and habits. If the dominant elitists were interested in improving the quality of civilization or in enhancing the quality of life and commonwealth in the USA or elsewhere, then we would be living in Heaven on Earth already. As much as anyone else, sociopathic elitists are creatures and victims of their ecocidal socioeconomic paradigm. Real economists are part of the solution, the others are all part of the problem.

    The applied science and practice of real economics cannot be used to rationalize perversity, corruption, and illogic. Corruption turns economics into plutonomics, a fraudulent abomination. Plutonomics is a symptom of Plutonomy, the End Game phase of an economy, a terminal cultural illness. In real economics, true wealth and real success are measures of healthy appreciation based on a stable, healthy culture, debt-free money, and positive credit. Subverting credit to manufacture ever more debt for ever more victims of systemic fraud perverts the economy and human culture.

    No civilization has or will ever succeed or even survive as a house divided against itself. Any alternative that lacks complete ethical integrity and biocentric values is innately unsustainable and its duration proportional. The only sustainable alternative resembles the economy of Star Trek and the ancient gifting economies of the primal spiritual cultures because, in ecologically sane cultures, value and quality of life are more important than taking, hoarding, competing, winning, scoring, and accounting. Corruption makes it very hard to understand that score (numbers & account balances) and winning are NOT more important than actual benefit, value, joy, wellness, a life sustaining biosphere, and a sane culture. Yet, all relatively sane people naturally want happiness, satisfaction, freedom, self-determination, some security and comfort. The crux of the human dilemma is central to the duality that drives the Market Economy, greed and fear.

    A healthy economy, whether local or global, is based on constructive cultural activity and exchange, not destructive exploitation, greed, hostility, and terror. Normalized cheating and bogus theories build neither wealth nor cultural health. Neither wealth nor cultural liveliness depend on winning or bloating, nor upon wasting or squandering.
    Saving is really deferred investing and wealth is, among other things, the potential and capacity for sustaining a best case scenario. Without a best case scenario, a win-win scenario, an economy’s snowballing End Game scenario keeps accelerating.

    The earlier claim, that Plutonomy has nothing to do with money and economics, is true. Pure money and credit are about voluntary cultural exchange, our relational dynamics, the effects, and optimizing the potentials of culture’s material interactions. Plutonomy is about doing whatever it takes to achieve maximum exploitation of a culture and its socioeconomic paradigm with the least expenditure of currency and effort. A valid money system requires stable values and rules and freedom from systematic abuse (systemic fraud). Plutonomy inevitably requires abusive fraud, subverting values, changing socioeconomic rules and meanings to favor the top exploiters. That requires subverting and corrupting the host culture’s sociocultural paradigm, its foundational ethical values, morals, ideas, and customs. Systemic corruption always progresses to the point of maximum vulnerability and ecocidal abuse, because the means to prevent it have been eliminated or neutralized.

    As Robert Reich and others before him have realized, to be valid, economics must be holistic, including study of all causes, governing dynamics, effects, relations, and responses to dangerous crises, and of opportunities that determine the success or failure of whole cultures or human civilization as a whole. Real world economics is clearly a branch of holontology, more closely related to anthropology, psychology, bioethics, and history than to applied mathematics. Without effective grounding in a deep study of the whole of human life and culture, there can be no accurate analysis of our ways, means, results, reactions, responses, relations, and trends.

    In an article presented at the 1985 symposium on Economy and Church in Dialogue, former Cardinal Joseph Ratzinger (now Pope Benedict XVI) said…

    “The economic inequality between the northern and southern hemispheres of the globe is becoming more and more an inner threat to the cohesion of the human family. The danger for our future from such a threat may be no less real than that proceeding from the weapons arsenals with which the East and the West oppose one another. New exertions must be made to overcome this tension, since all methods employed hitherto have proven themselves inadequate. In fact, the misery in the world has increased in shocking measure during the last thirty years. In order to find solutions that will truly lead us forward, new economic ideas will be necessary. But such measures do not seem conceivable or, above all, practicable without new moral impulses. It is at this point that a dialogue between Church and economy becomes both possible and necessary…”

    “These realms have come to appear mutually exclusive in the modern context of the separation of the subjective and objective realms. But the whole point is precisely that they should meet, preserving their own integrity and yet inseparable. It is becoming an increasingly obvious fact of economic history that the development of economic systems which concentrate on the common good depends on a determinate ethical system, which in turn can be born and sustained only by strong religious convictions. Conversely, it has also become obvious that the decline of such discipline can actually cause the laws of the market to collapse. An economic policy that is ordered not only to the good of the group — indeed, not only to the common good of a determinate state — but to the common good of the family of man demands a maximum of ethical discipline and thus a maximum of religious strength. The political formation of a will that employs the inherent economic laws towards this goal appears, in spite of all humanitarian protestations, almost impossible today. It can only be realized if new ethical powers are completely set free. A morality that believes itself able to dispense with the technical knowledge of economic laws is not morality but moralism. As such it is the antithesis of morality. A scientific approach that believes itself capable of managing without an ethos misunderstands the reality of man. Therefore it is not scientific. Today we need a maximum of specialized economic understanding, but also a maximum of ethos so that specialized economic understanding may enter the service of the right goals. Only in this way will its knowledge be both politically practicable and socially tolerable.”
    >> http://www.acton.org/global/article/market-economy-and-ethics

    “Buddhist Economics” is an essay by E. F. Schumacher, the humanitarian economist and author of Small is Beautiful: Economics as if People Mattered.

    When asked by other economists what Buddhism has to do with economics, Schumacher told them, “Economics without Buddhism — without spiritual, human, and ecological values — is like sex without love.”

    To be more precise, heartless pseudo-economics is like chronic, incestuous rape, torture and conspiracy to aid and abet mass murder and ecocide. Realistic economics must assess influences operating in the psychological and ethical dimensions of culture, the nonrational and supra-rational mind-body functioning of real agents, the good, the bad, and the ugly as is. When the reality of life and the whole of human being are given due consideration, economics can provide a scope of study and understanding as rich and vast as the infinite potentials of human life and cultural evolution. We can call that the economics of compassion.
    Pope Benedict may be one of the most Buddhist of all Christians, but how do we turn ethics and realistic economics into effective policy?

    Until the economics of compassion and basic happiness are predominant, GDP may as well stand for Grotesque Demonic Perversion. When compassion is intrinsic to economics, we will be able to enjoy the GDH, Global Domestic Happiness. Until the GDH is established, we need to fully explore, research, develop, and experience more of the ways and means of sustainable success, and that requires realistic, humanistic economics. Such a positive alternative requires extraordinary devotion to ethical integrity and effective action supporting the evolution of both economics and of society, thus of its socioeconomic paradigm as well. Such effective economics will require effective education and dynamic action in favor of social justice, sanity, and sustainability.

    The most effective action will be establishing a sane, green alternative to Plutonomy and ongoing disaster, a nonprofit credit system for the new Gifting Culture of a millennial civilization. The alternative is too dismal too contemplate, but it would be aggravated by ever more of Earth’s wealth being controlled and squandered by ever fewer winners. The end of our End Game scenario could be more atrocious than the fall of any of the civilizations that fell before ours. Hopefully, this work makes The Choice relatively easy.

    For more on the new nonprofit community credit system and related issues, see The Greenbook in progress and the new “Green Community Credit System” group on Facebook.

    :: :: ::

  11. December 29, 2011 at 8:18 pm

    Ooops! As usual in the development phase of my Work, I see nice little tweaks just after posting or sending out drafts for review. The latest upgrade will soon be posted at The Greenbook etc…

    BTW, is RWE a solo sport for insecure egos or do some RW Economists actually collaborate on problem SOLVING and refining & upgrading basic theory & the socioeconomic paradigm?

    Just kidding :) So, anyone care to discuss fundamentals of economics & natural values and how to best accomplish emergency paradigm repair?

    Thanks, Love, Blissings & Happy New World!

  12. January 2, 2012 at 8:22 am

    Correction: It’s not a repudiation of classical economics that is happening, it is a repudiation of NEO-classical economics. Classical economics was already overthrown (not really repudiated) in the early 20th century, particularly with respect to the role of natural resources in the factors of production. Refresher: in Classical Economics, Land (ALL the natural resources of the world) was seen as one of three critical factors, along with Capital and Labor.
    Modern conflation of Land (made by nature, finite, typically appreciates, etc.) with Capital (manmade, infinite within the constraints of labor and, well, resources), typically depreciates), is why we can have so much speculation on Land, as if it was no different from the houses sitting on Land. Houses we can make more of. Land, and especially location, we can’t.
    Henry George, the last of the great classical economists, and the one that posed the greatest threat to the powers that be (including the land-grant universities), was systematically expunged after his premature death in 1897. See: Prof. Mason Gaffney’s “The Corruption of Economics” to see how, who, and why this was done.
    Economists can twist economics into the non-science it is today, but they can’t remake natural law. And natural law always weighs in last and most.
    We have had, and are still having, a Land bubble, not a housing bubble.
    To cure it, we need a universal Land Value Tax, that will tax only the value of land, not the results of production: wages, sales and fixed capital (e.g. buildings).

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