‘Rebalancing’ now would in effect mean the impoverishment of everyone under 40 whilst allowing everyone currently retired or about to retire to sit back and enjoy their fat pensions, benefits and property based wealth

Couldn’t agree more, but isn’t exactly what’s happening? Massive support for house prices while inflation erodes everyones real wealth and spending power. People hark back to the 70s and assume inflation is a good way to get out of debt, well for a country that can print it’s own currency and soft default it is, but for the average Joe it’s not unless there is wage inflation (a la 70s) to go with it, and in a global economy that ain’t happening.

Surely GDP has to be above inflation to be real growth?

speculation gets out of control then the price goes up so high that people can’t afford the bread it’s used to make. Ordinarily this would be fine

By fine you mean the fact that folk cannot eat bread is fine ?…shall we eat cake instead?- Ok I assume that is not what you meant to be fair here.

as market forces would intervene (no bread sales) and the cost of bread (and thus corn) would drop until the market could support it.

And demand plummet as we starve no doubt? Not really helpful if you cannot eat though is it?

Problems come when you add in a good dose of ‘support’ from governments

In this case the govt intervene because people are starving they did not cause the price to rise the “perfect” market did this. Intervention is a response to the fact the market is imperfect it is not the cause of the imperfection – by imperfection i mean starvation

Despite this we still get told its perfect if we just left it alone

I don’t care for economic growth, I care for quality of life growth……….

JY – if speculation on necessities such as food and shelter weren’t allowed then we wouldn’t require intervention of any kind.

Junkyard – lazarus
Growth was discussed on stefanomics FWIW on radio 4 this week
Economics for idiots basically so i am sure THM will recomend it to a number of us

JY – I would indeed but not for the reason that you hint at – that would be patronising!! 😉 I am a fan of Flanders. She explains difficult economic issues with clarity especially the challenges/paradoxes/inter-relationships that make it a murky science to others. I haven’t seen what she has said about this data, but I have no doubt that it would be informative and well-researched.

Nothing he has ever done has made me think he is anything other than politically motivated and he would do this no matter what as it is not economically motivated but politically motivated

I think this should be added to the paradox box along with “tolerant except with the intolerant” (or words to that effect). Osborne is first and foremost a politician. What do politicians crave most? Power. You do not stay in power by delivering weak economic performance and you certainly (sadly) do not prioritise long term benefits over short term opportunism. Hence (despite all the noise) the pretty poor attempts at tackling either the deficit and by implication the debt levels in our highly indebted nation. What does he suggest instead (despite CMD’s you cant borrow more to get you out of debt crisis), more bank lending, more borrowing for houses etc…..

He is implementing the same policies that parties of many different political persuasions are implementing (without success) across Europe. so very difficult to argue the ideology case despite its attraction to headline makers.

As for, “The City is evil….serves no economic purpose” ideas, this is obvious BS. As is having a Business Secretary who cant help himself from using the term casino banking. So where does government spending come from? Two sources – taxation and borrowing. Lets leave aside the obvious tax benefit and just focus on the later. Governments need to borrow massive (and increasing) amounts of money. For this they need deep, liquid and (price) transparent markets. This required price-setters to be able to hedge positions to create the liquidity that is required to raise money sustainably at low prices. Hedging in turn requires liquidity and other players. Of course, the extent to which people are merely speculating and providing vital liquidity/ability to hedge massive risk positions does become blurred. But take this all away and the consequences for much of what we expect governments to provide would be very severe – beware the law of unintended consequences.

Two people come out of the badly today IMO. The first is the IMF. They have promoted/rejected/promoted/rejected etc the same policies for the UK through the crisis. Their latest volte-face into rejection mode based on the idea that private demand is too weak looks particulalry ill-advised today since the only flicker of a bright light hidden away in these GDP numbers is the recovery in private demand. The second is Ed Balls (biased here as I only heard him on the radio and missed Osborne and Alexander). But his breathtaking BS continues, especially (1) the idea that he left the economy and government finances in good shape, (2) that his policies would be radically different and (3) ignoring that he was trained in a school of economics that teaches exactly the opposite treatment of government financed to the ones he supported while in power. In balance, Balls deserves credit for his insistence on using the correct term to describe the economy at present – flatlining!

It is obvious that the statistics were, ahem, ‘massaged’. I knew what was going to happen from the moment I heard Radio 4 speculate that the statistics would be worse than expected. “Ah!” I thought, “the statistics are bound to be better than anyone dared hope for the week before local elections…” And I was right.

So in this land of milk and honey we’ll have no economic problems at all, at least none worth mentioning…

That might be harsh Ohnohesback, given the ONS is an independent non-minister department with statutory responsibilities. They may make mistakes but quite an accusation, given the statutory bit, to suggest skulduggery here!

Thank goodness for Flanders. Anyone else who tries to blather on about this stuff bores the shit out of me.

Chapeau DD, better than normal and really quite inspired. Still not Messi but more Scholes than Hunter. Keep it up!

Chapeau DD, better than normal and really quite inspired. Still not Messi but more Scholes than Hunter. Keep it up!

As I asked the other day thm, WTF are you on about with these football metaphors? You need some fresh air again or something?

I will leave it with you, really not that difficult. (edit Scholes in a bit unfair for such a step up. Should have been Arjen Robben at least. Skilful if predictable these days)

I will leave it with you, really not that difficult.

Nah, you’ve lost me.

if speculation gets out of control then the price goes up so high that people can’t afford the bread it’s used to make. Ordinarily this would be fine as market forces would intervene (no bread sales) and the cost of bread (and thus corn) would drop until the market could support it.

This illustrates the wider point I think about ideology. Unfettered capitalism would result in starvation for these reasons. That’s why people talk about various kinds of ‘nice’ capitalism, where important things are protected and people are free to make tons of cash elsewhere.

I don’t care for economic growth, I care for quality of life growth

The two are SOMEWHAT linked, but of course not entirely.

dazh
“I agree. Trouble is the seeds of the imbalance were sown 60 years ago. ‘Rebalancing’ now would in effect mean the impoverishment of everyone under 40 whilst allowing everyone currently retired or about to retire to sit back and enjoy their fat pensions, benefits and property based wealth. Any rebalancing would have to take this into account but I don’t see any politicians queuing up to raid the pension pots and bank accounts of the over-60s.”

No one will be immune from the “rebalancing” anyone with any hard earned (some do you know)savings (pension (public, private,state) , isa, whatever) in any sort of financial institution of any type will be major losers. Most peoples savings will be wiped out, the government will not be able to afford most of its commitments. Anyone banking (ho ho) on using any equity in property will lose because prices will crash, massively. The whole of the financial system is a giant pack of cards waiting to fall. In the UK it’s going to be pretty serious. We are running out of afforadable credit like we are running out of cheap fossil fuels. Its happening we all know and hardly anyone dare take notice. Watch what happens when Portugal or Italy default. Beer anyone, cheers.

I tend to agree 100% with binners on threads of this nature!

if speculation on necessities such as food and shelter weren’t allowed then we wouldn’t require intervention of any kind.

Yes we would as the market is deeply flawed as it is has no morals – that was the point. You cannot see how a market – say a monopoly/oligarchy would not be perfect- its utter BS to suggest markets work great till we intervene – we intervene because the markets deliver results that are morally abhorent/fail. Hence why currently everyone is arguing for tighter regulation of banking not removing all the rules[ ok some are arguing that but you get the point].
No market is perfect whatever the adherents tell us they all require regulation

I am a fan of Flanders. She explains difficult economic issues with clarity especially the challenges/paradoxes/inter-relationships that make it a murky science to others

Indeed she is good and shall just resist not biting on the science bit

people are free to make tons of cash elsewhere.

Not sure why you want them to be free to rip you off over bike parts but not food …its like you are happy to be shat on as long as you can eat…you have nothing to loose but your chains etc 😉

Well the volume of say bike chains is so low compared to bread that the market is unlikely to be hijacked by speculators. As for most luxury goods. It’s not like you’ll die if you don’t get one within a couple of days. So market forces will come in eventually and there will always be chains available at a sensible price… well.. mostly sensible anyway.. I remember Sedis chains at £6 each though…

Its a reference to Karl Marx/Engels Molly in the communist manifesto

Workers of the World, Unite. You have nothing to lose but your chains!

it was not as literal as you took it but i can see why my use of bike parts caused the confusion Sorry

How can a market be accused of being moral or immoral? Its a economic system and is amoral, surely? Its participants (buyers and sellers) my well be moral or immoral as is the case at the other end of the spectrum (planned economies).

Markets are extremely effective means of allocating scarce resource and to suggest otherwise is to ignore centuries of history. Many work without intervention and many/some fail because of intervention (as was the case in the current crisis – partially). But they have failings that are well recognised (normally 8 well known reasons that an A level student will need in an essay) which is why most mature economies combine free markets with government intervention.

The current mess in the financial services industry is an excellent case study in the problems of regulating to remedy market failures as much as a failure of the market itself IMO!

BTW – Flanders write up on the GDP data is v good as usual!!

How can a market be accused of being moral or immoral? Its a economic system and is amoral, surely?

Probably true to be fair but as people are not amoral it will always be unfair an therefore be regulated.

Markets are extremely effective means of allocating scarce resource and to suggest otherwise is to ignore centuries of history

yes the effectively take resources from the many and give to the few so we have the rich and the poor..they are indeed excellent at this 😉

Worked well with slavery iirc
Suffice to say I dont agree – marketing is wasteful for example – some aspects of competition are wasteful as you know

Many work without intervention and many/some fail because of intervention (as was the case in the current crisis – partially). But they have failings

getting lost now tbh they are efficient, they work without intervention[ for example please- genuine question btw] but they have failings….which is it as these seem to be different views- It seems you accept , like i do, that it is a flawed system though we have different solutions.

The current mess in the financial services industry is an excellent case study in the problems of regulating to remedy market failures as much as a failure of the market itself IMO!

Probably a fairish point if you think the market can be regulated to work as it was arguably a bit of both [ assuming you think capitalism can ever work]

Markets are extremely effective means of allocating scarce resource and to suggest otherwise is to ignore centuries of history.

Eh?

That depends very much on what you mean by ‘effective’.

It would be more accurate to say that ‘Markets are an extremely effective way of exploiting scarce resources if by effective we mean ‘able to make large profits for relatively few people’…

While we’re not ‘ignoring centuries of history’, lets not ignore the extent to which guns, warships and above all slavery seem to be being left out of the equation; free markets have proven immoral for many, many years.

JY, is is simply untrue to argue that the result will always be unfair. I agree that people are amoral, but lets assume that we have two moral people. One has something to sell and one has something to buy. How should that exchange happen? Should another body (a government) state whether it should be allowed and at what price or should the two be allowed to decide for themselves if there is a price at which one is happy to sell and the other is happy to buy? Which would be moral and which would be immoral?

I do not accept that it is a flawed system. Under certain circumtances markets can fail but those circumstances are not universal, certain or pre-determined. To repeat at the risk of labouring the point, this is exactly why we combine markets and state planning in most mature economies.

Crickey, you analysis ignores the fact that competitive markets prevent large profits being made through time. Imagine what would happen to the price of most goods and services without competitive markets?

Crickey, you analysis ignores the fact that competitive markets prevent large profits being made through time.

Again, Eh?

Competitive markets prevent large profits being made through time

Have you really thought that through?

Yes, why do governments intervene to prevent markets becoming uncompetitive?

Such regulations may, no doubt, be considered as in some respects a violation of natural liberty. But these exertions of the natural liberty of a few individuals, which might endanger the security of the whole society are, and ought to be, restrained by the laws of all governments. The obligation of building party walls, in order to prevent the communication of fire, is a violation of natural liberty, exactly of the same kind with the regulations of the banking trade which are here proposed. ~ Adam Smith in The Wealth of Nations

Because when faced with doing the right thing or getting filthy rich, people often choose to get filthy rich.

That may be true but how does that link to our previous points? If anything that fact explains why governments actively promote competitive markets.

I think it shows why the market is flawed and the solution is not more market any more than more petrol is the solution to fire
Take microsoft – do they exploit their market position? Court cases would suggest Yes. Can someone really compete with them – really can they? Theoretically yes but in reality not reall. It is aslo worth noting that “more market” may mean us all having different programmes and different Operating systems which may not actually be advantageous – see trains having different sized tracks for example. I fail to see hwy anyone thinks the market gets ideal solutions tbh as we all accept it is so flawed it needs regulation

Should another body (a government) state whether it should be allowed and at what price or should the two be allowed to decide for themselves if there is a price at which one is happy to sell and the other is happy to buy?

That is to simplistic and the market is nothing like that and no bartering is not a perfect system either. As to intervene it all depends me yes obviously but to some it is a dirty word. If you were watching me overcharge your son for a bike bit would you say nothing and watch the “perfect market” or say something?
PS if you have water the price at i might be willing to pay may be rather high to avoid death and the seller could easily exploit that in a market ..resources are scare no one else has water etc.
What if i am an addict and I am hooked on your produce..lets say it is Haribo 😉

FWIW I am not saying a market can bring no good either I am just syaing it is not universally good

JY, neither of your choices are examples of a market working so cannot comment*. Why would you overcharging my son be a perfect market? If you are correct that no markets can deliver ideal outcomes, then we should have a completely planned economy. And we have plenty of examples of how successful that model is. Just another reason why we continue to mix both systems where appropriate and generally encourage competition rather than discourage it. I am sure that every day you are involved in market transactions of some sort from which you are happy with the outcome.

* can you reconcile your point that Microsoft’s dominant market position prevents a free market in software working with the idea that the thing that is being prevented from happening (a free market in software) is a bad one. The logic escapes me.

JY, neither of your choices are examples of a market working so cannot comment.

Eh? for the third time…

Give us an example or two of a ‘market working’ then.

the effectively take resources from the many and give to the few so we have the rich and the poor..they are indeed excellent at this

Name one instance in history where that hasn’t happened in a modern economy. And don’t quote communist Russia as an example…..

Take microsoft – do they exploit their market position? Court cases would suggest Yes. Can someone really compete with them – really can they?

Of course! They are far from market leaders in lots of things they do, and Apple managed to take a huge chunk out of the prestige desktop market.

And how did they get to a dominant position in the first place? There used to be a fair few operating systems for PC. In fact, there still are, but people don’t want them. Market = working.

Limited resources is a different thing, and you mention water. As far as I can see – someone who knows economics (ie THM) please correct me – the market fails when there is a big disparity of wealth. People in the USA can buy corn with which to fill its luxury SUVs, when Mexicans can’t afford to buy it to eat.

The market works, in that the corn goes to those with the most money, but it doesn’t work in a humanitarian sense.

The logic escapes me

It escapes me as well but I am not claiming markets are anything other than flawed so it being contradictory does not weaken my argument it is just another problem 😉
I can see why you think these two positions contradict but I would say the best solution would be a single OS – ie competition/market is not the best option but think Microsoft are not the best OS or company as they are exploitative of their position which is not good IMHO. I dont think this view really matters tbh when i am just saying markets dont work – I see your point.

Name one instance in history where that hasn’t happened in a modern economy.

My point was this is what the market does so why would you ask me to find an example of it not doing this ?

the market fails when there is a big disparity of wealth

You now give an example of a big disparity and the market working

The market works, in that the corn goes to those with the most money, but it doesn’t work in a humanitarian sense.

I shall let THM decide which one of knows least /is the most confused 😉

Well it depends what you mean by ‘work’ doens’t it?

I think we are starting to mix markets at the macro and micro level here. On the one hand it doesn’t matter since pure free markets (macro) or perfectly competitive markets (micro) do not exist in reality. They both represent theoretical situations at the end of a spectrum where reality lies in between this and the other extreme.

Microsoft is a good example. In a free market, is is possible that firms become increasingly dominant in their chosen industry. In MS’s case these appears to be the result of being good at what it does and, if the courts are correct, behaving in an illegal manner. But the reasons do not matter for now. But at the industry level, a firm like MS “can” get so powerful that it becomes a monopoly. This “can” (but not necessarily) lead to higher prices and lower output. What economists refer to as a loss of welfare. This happens exactly because competition is restricted ie the market forces cease to work. Now look at the hardware side, at the industry level the market is more competitive and we see the benefits in more choice, more and better output and lower prices ie higher welfare. Just think of the computer that you are reading this on!

Defending systems that work against welfare and whether this is moral or immoral is another debate altogether!

Anyway back to 24 box set and a glass of wine!

Which comes back to crikey’s earlier question – no I cannot think of a free market at either the macro or industry level. Can you?

THM, I am amazed that you have the patience to continually teach STW elementary economics, but I really appreciate that you do 🙂

This “can” (but not necessarily) lead to higher prices and lower output.* What economists refer to as a loss of welfare. This happens exactly because competition is restricted ie the market forces cease to work

So market forces leads to market forces not working and yet the market is still “perfect” 😕
Its not and we are forced to intervene to make it “fair”.

* I cannot name a free market nor can I name a company that does not exploit a monopoly.

People in the USA can buy corn with which to fill its luxury SUVs, when Mexicans can’t afford to buy it to eat.

This is a classic case of where government intervention causes the problem, there were significant tax breaks for converting crops into fuel in the US. This meant such conversion companies were willing to pay more for the crop as they were still profitable because of the subsidy, which led to greater demand for a finite supply.

Yes.. but then the lack of regulation.. NAFTA maybe, I’m a little hazy and cba to google.. allowed people to buy up the corn and raise the price across the continent

The price rose because of increased demand, why was there increased demand? Because of the subsidy. The market reacted to the subsidy, a free market would have been one without a subsidy.