Back when governments chose to nationalize dubious private debts, paying top dollar to protect major wealth-holders and their institutional vehicles from ruin, two criticisms were voiced—that this would engender moral hazard, and that it would violate all reasonable standards of social justice. Both had merit, but less attention was given to a third, far more serious criticism, that fiscal space was limited, and that using it up to reflate the financial elites would leave us without options in the event of a future financial spasm.
If the events of the last two days continue and escalate, that spasm is upon us. Will governments have the resources to contain it?
7 comments:
If 'austerity' were something that could be quantified, the resulting amount would be something well in excess of what can be eliminated globally within the limits of how much cheap capital there is available, and this is true also within the limits of deficit spending. So the question regarding how much of this quantified 'austerity' should be allowed to exist in Greece, or in any nation for that matter, is a question of where 'austerity' will do the most good, in combination to where the elimination of 'austerity' will do the least amount of harm. Or, one might ask if the Greek people deserve a second chance in light of the fact that their nation is corrupt to its very core; or, is there some other developing nation that might become inspired by the advantages of cheap capital and then add to global progress the way that Singapore or China has. There is too the consideration of just how many more nations will there be in similar circumstances to those of Greece's?
What is missing from the broad debate related to the bail-outs of nations is any mention of global aggregate demand (GAD). Which is odd considering that an improvement to GAD is the most critical criteria for how limited amounts of discounted IMF capital or foreign capital bail-out funds tied up by deficit spending can be justified in a world with GAD woefully short of adequate. At some point the question becomes whether discounted capital should be used to enable wealthy Greeks to evade paying taxes or whether the money is better used for development loans? Which is a rather easy question to answer on moral grounds. But of course there is the chance that one (or more) of the GIIPS ends up like Argentina did with poverty rates above 50%, although... that is where the 'austerity' issue, and where it will do the most good, gets interesting. Because, for a lower cost in terms of discounted capital an equal or even greater amount of 'austerity' can be eliminated or prevented in other countries. So... as for 'austerity' in Greece, or in any relatively corrupt nation, it comes down to which population is most likely to apply the necessary pressure to bring about the much needed reforms.
The defaults too can be dealt with on a case by case basis as they arise as part of an effort to ensure that the funds are restricted to what they are intended for. Solving Greece's corruption problem though is something that only the collective will of the Greek people can reform directly, and austerity conditions on emergency loans provide the most effective tool the IMF, or any international effort, has to do what it can to move things forward. It is an important consideration though that there are very real limits to just how much 'bailing-out' is doable.
"that fiscal space was limited, and that using it up to reflate the financial elites would leave us without options in the event of a future financial spasm."
HUH?!?!
I see the problem in Greece and California. These entities are using a commodity for money and commodities are fixed. The commodity they are using is someone else's money. The United States does not have this problem. The Banks and the politicians are hornswagglinig everyone. There is no applicable "fiscal space" limitation. There is only a currency value limitation which can always be cured by appropriate taxation.
This should be the fall of "capitalism" as it has been known and the birth of "capitalism" in its true form. "capitalism" as it has been known has been the control of money by the private banks and the control of natural resources by an elite gang of "conservatives". Money nor land are "capital". That the system has been called "capitalism" and that people keep referring to money as "capital" is an illustration of the success of neoclassical tap dancers who are merely financiers dressed in a cap and gown.
Capital is factories, tools, roads, bridges, hydroelectric dams, wind-farms, trucks, trains, and aireoplanes. Money is a unit of account. Coal deposits, oil, gold (in the ground), land itself and all the naturally occurring plants and animals are "natural resources".
"capitalism" should be about the private ownership of "capital". It should not be about the private ownership of stuff that ISN'T "capital". When the unit of account is employed to defraud the producers in the economy then the system is broken. And it is this fraud that is being perpetrated with the bail outs of the financial people no matter where they may reside. What needs to happen is the devaluation of money itself by virtue of bottom side stimulus (wage push inflatioin) so as to regain the value stolen by the bailouts. At that point, taxes on extreme incomes must be increased to assure that the unit of account retains value.
Greece and California have a problem that must be cured by taxation in the nonce. California is in the crapper because the government of California did not tax land values sufficiently. The property values in California still have not fallen enough and the land is the proper object of taxation in a state that cannot create its own money. The "government" of California is a joke.
Trucker:
With respect, none of the items you cite are worth anything until someone, some person or persons, applies effort to do something. Therefore, I submit, that only people are capital. Everything else is jury-rigging to direct the effort. Not necessarily for general benefit. That's the rub.
An Amerind saying to the effect that "the Chiefs do not eat until the eldest widow and the youngest orphan have been fed", might apply. But more likely "Devil take the hindmost" rules.
(If any one can help me source the first quote I would greatly appreciate it. Google and Wikipedia were no help. Thanks.)
--ml
Martin Langeland said...
(nothing happens) "until someone, some person or persons, applies effort to do something".
And the result of that doing is called "wealth" or " commodities" or "goods". These outputs when not consumed may be invested to create "capital" and the purpose of that "capital" is typically to allow people (labor) to create more goods with less effort and/or less discomfort:
In _real_ economics there is sentient MAN and there is NATURE (other than man). We label these "labor" and "land" respectively. All goods arise from these two inputs. The "capital" is an amplifier of labor.
The Berry Patch. Private ownership of "capital" enhances the rate of development of "capital".
Capital is the action. Wealth is the result. Without human labor nature continues more or less well. Only with human labor does nature change to natural resources. Difference, I think.
Land cannot be owned. The time scales of land and human are too different. Our claims to the contrary lead to much violence and unhappiness.
--ml
Semantics???
Labor Theory of Cost
Semantics, indeed.
Sorry to be so dense, Trucker. We appear to be in basic agreement. But we are concerned with different levels of the glass bead game. ;)
--ml
Post a Comment