Category Archives: business cycle

Does poverty cause conservatism?

A University of Tennessee study, reported at phys.org among other places, finds that, when incomes are more concentrated, people are more likely to say they oppose governmental redistribution of income.  This decidedly includes low-income people.  Why would low-income people oppose redistribution of income?

It might be because they’re too busy with survival to pay much attention to the question.  Or, having been screwed by the powers-that-be, they assume any redistribution will be away from them, toward those already in control.  Might even be that they are “free-market” types who expect to make a better living in the absence of government interference. I really have no idea.

I’ve only seen the news report, the actual paper seems to be behind a paywall, so there’s a lot of detail left unspecified. Such as whether “redistribution” is defined to include the current pattern of redistribution from those who work to  those who manipulate, what specific surveys were analyzed, and how the matter of sequence (Does public support for redistribution cause redistributive programs to be expanded?) was handled.

Why Why the German Republic Fell is Hard to Find

Bruno Heilig’s 1938 essay Why the German Republic Fell is posted and freely available on the Internet. Unfortunately, the Scholars at the School of Cooperative Individualism are not the world’s greatest proofreaders, so google has some trouble finding it, but it is here.  There is also a nice abridgement here.  Hardcopy, of course, is for sale cheap at Schalkenbach.

I read this booklet about 25 years ago, didn’t remember a thing about it, but hoped it would give me some insight into how the Weimar inflation was dealt with. No such luck, it really begins after inflation had been tamed and prosperity commenced, but it’s all the more worthwhile for that.   Heilig asserts that the rise of Hitler was caused by land speculation. I am no expert in German history, but he does seem to make a good case.

Not by land speculation exclusively, of course, but land speculation as an ingredient along with:

  • public aid to large landlords, encouraging them to withhold land from use
  • privatization, on especially favorable terms to connected individuals and groups
  • failure to fully utilize farmland, resulting in unemployment as well as high food prices
  • tariffs, raising prices of consumer and industrial goods
  • public subsidies to favored enterprises
  • control of the major news media by the landed class

Land prices soared, wages fell, eventually the economy slowed, and:

Although it was obvious that the, “invariable costs” — i.e. the tribute land monopoly exacts from the working people — were eating into all production, the responsible men and the leading exponents of what was taught as economics kept their eyes, as if under some hypnotic influence, fixed upon the worker’s pay-packet.

Reformers advocated unworkable or ineffective solutions: If progress brings poverty, they urged that we retard progress.

The newspapers, of course, served the interests of their owners:

I need not explain what that propaganda organization meant in operation. Its effect was to sway public opinion into believing that the interests of the landowners were the interests of the nation. Subsidizing the landlords was the accepted policy for preserving and even saving the sources of subsistence of the people: the higher tariff walls were for the benefit of the wage-earning population: increase in land values meant increase in the national wealth: and so on…

[A]s unemployment grew, and with it poverty and the fear of poverty, so grew the influence of the Nazi Party, which was making its lavish promises to the frustrated and its violent appeal to the revenges of a populace aware of its wrongs but condemned to hear only a malignant and distorted explanation of them.

Much in this essay is similar to today, tho Heilig never uses words like “TIF” or “terrorism.”  Some things are decidely different, for example I don’t think Germany at the time had anything like a well-paid public employee class, nor a large class of small-scale investors, such as workers with 401k’s.  But it’s easy to see how today’s conditions could lead to similar results.

Are you smarter than a hedge fund trader?

As for me, I’m just a little dumber than average, among the people who undertook the Trader’s Brain Scan, a test of memory and pattern recognition skills which presumably are important to profitable trading in financial markets.  Nothing on the test about bribing Congressbeings or extracting inside information from officials. Maybe that’s in one of the other modules.

This is among a dozen tests for (actual or aspiring) investors, traders, and entrepreneurs at Marketpsych.  Free registration (giving them an email address and signing their agreement) is required, but the results appear right in your browser as well as in the emails they send, and your name is not requested.

Banksters as parasites

At the Monetary Reform Conference a couple weeks ago, Michael Hudson asserted that banksters, like biological parasites,  change the way the host thinks, to better suit the parasite’s needs.  I wouldn’t question this regarding  banksters, but I doubted the biological fact. Then I encountered the October 9 episode of Radio National’s All in the Mind.   Mice infected by toxoplasma lose their fear of cats. Fish infected by trematodes behave in ways to attract predator birds, etc.

The site includes a transcript, audio, and (scroll way down to) an extensive bibliography.

We Institutionalize Kleptocracy

That’s how Yves Smith describes the probable outcome of the latest bunch of mortgage finance scandals.  We already know that lenders lied, brokers lied, consumers were instructed to lie, and the whole house of cards was built on perpetually-rising land prices. In recent weeks, and especially the past couple of days, we are learning that the back office lied too, nobody bothered to process much of the paperwork, it was easier to just forge documents as needed, and for many parcels it will be difficult or impossible for tell who really owns the mortgage (which likely will never be repaid anyway as it far exceeds what the property could be sold for).

The solution? Smith (and others) expect the federal authorities to move in, Continue reading

Theories are easy; facts are hard

Georgists say that we understand the cause of the global financial crisis, and we saw it coming.  So if we’re so smart, why ain’t we rich? Well, some of us are, but for most of us it’s a matter of data and calibration. If we had detailed data on land prices and land rents, and a few other robust variables, properly and consistently defined, for a couple hundred years, we might make some real and pretty quick money from the theory that we do understand quite well.Or maybe not.

The above is suggested by a somewhat related post at Falkenblog.

Most people think facts are easy, and theory is hard, but actually I think it is the reverse. Theory, once you understand it, is trivial, yet important facts are very elusive, often at the bottom of most major disagreements.

And, from one of the comments:

Economics is not Physics. Economists do not collect data then develop theories like physicists. Economics is closer to Ethics in form and methodology…

Taking risk for modest returns

As interest rates on “safe” bonds and CD’s decline, those with cash to invest may look to riskier options in order to generate significant return. M P McQueen in the WSJ identifies possibilities including cellphone towers, self-storage facilities, parking lots, and offcampus student housing.

The article notes some cases of > 100% returns, but what’s scary is the indication that an ordinary investor with reasonable luck is told to expect returns more in the range of 7% – 10%.  Does that compensate for the risk involved?  Or is everyone still counting on selling out at a profit several years down the road?

Of course another option is peer-to-peer lending, such as Lending Club or Prosper, who claim returns in the same range. There’s still plenty of risk, but a modest investor can diversify by participating in a hundred or more loans.  Liquidity is limited, but at least in the case of Lending Club loans can be bought and sold (no guarantees about the price, however).

Steve Keen on the financial crisis

Aussie economist Steve Keen, whom I have mentioned before in an investing context, has interesting recommendations for dealing with our economic meltdown.  His analysis distinguishes between capitalists and financiers, recognizing the former as labor’s allies in the production of wealth, and the latter as parasites who crashed the economy. His immediate solution for rebooting the economy now is that about 2/3 of the debt needs to be written off, tho he recognizes that legitimate savers must be protected in this process.

But long term, how to prevent something like this from happening again?  It seems that his key proposal is to restrict stock trading. Corporations could still issue stock, with voting and dividends as today.  And the stock could be traded.  However, as soon as a share of stock is traded, its “perpetual” life would be shortened to 30 years.  He says that would prevent people from leveraging the purchase of stock, which represents a big part of the debt that got us in this mess. Certainly it would require investors to look more closely at what their money is actually being used for, and would tend to make corporate ownership more focused on the long-term future.

His second proposal seems to be a restriction on the amount of debt that can be secured by real estate, limiting it to 10 times the rental value. (However, the video is truncated before he can discuss this point.)

How Georgist is this?

In a geoist world, privilege would be eliminated or taxed, including public collection of essentially all economic rent.  As a result, the value of stock could only represent real capital, which generally lasts less than 30 years.  And of course, with rent publicly collected, investors would (we expect) realize that real estate leverage cannot be profitable.  So I think Keen is proposing an alternative, more complicated way of achieving something similar to a Georgist reform.

There’s much more in the video, about his modeling work and the details of the mess we’re in.  Probably the most interesting part is near the end, where he makes his 30-year-limit-on-stock proposal.  The (New York) audience, probably people in the securities business, cannot accept this.  “Who would trade stock if doing so reduced its value?” “If people didn’t trade stock, how would traders know what it was worth?” “If I didn’t buy Microsoft stock when it was first issued, how could I buy it?”

Just as with land, everybody assumes that they will get rich off the stock market.  And that they should.

note: This link (repeated from above) takes you to Keen’s blog article, which includes  links to an MP4 video of the presentation as well as a pptx file (pretty much readable by Impress) of his slides.  There is also a paper (which I did not read).

Martin Wolf wants to socialize land rent

As do pretty much all of us who understand economics from a geoist perspective.  Wolf happens to be a columnist for the influential Financial Times, and in this column he endorses Fred Harrison‘s analysis of the fundamental cause of periodic economic meltdowns.  (Since FT probably won’t leave this accessible for very long, here is the citation:

Financial Times:
Why we must halt the land cycle
By Martin Wolf
Published: July 8 2010 22:28)

But Wolf goes on

Socialising the full rental value of land would destroy the financial system and the wealth of a large part of the public.

As if the recent financial collapses did not very nearly do the same.

That is obviously impossible. But socialising any gain from here on would be far less so.

I believe this was proposed by John Stuart Mill, and evaluated by Henry George as “better than nothing.” Which it is, and had it been seriously and honestly enforced since George’s day we wouldn’t worry much about financial crashes now.

UK-based Wolf also infers that, with land price gains impossible, there might be less need for direct controls on what Americans call “sprawl.”

via Dave Wetzel