Credit <=> crisis
7/8/11 17:22![[identity profile]](https://www.dreamwidth.org/img/silk/identity/openid.png){kind=small}
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talkpoliticsWe often hear the assertion that economic crises occur as a result of personal incompetence, greed and bad credits. Never mind the structural inconsistencies in a society. Now, two economists (Michael Kumhof and Romain Ranciere) are proposing a different approach in explaining these phenomena. They've explored an aspect of the US market which is often overlooked, but which is closely related to bankruptcy. And that is the relative level of financial disparity between the various layers of society.
They investigated the economic data around the two biggest financial crises in modern history (1929 and 2008). In both cases they concluded that the crisis happened when the "scissor" between the rich and poor was opened too widely, until at some point it turned out that the top-5% layer was in possession of 34% of the wealth. That was coupled with a simultaneous increase of the share of private credits - in fact it doubled.
They argue that the logic is very simple. In order to sustain the tempo of consumption, people with weaker financial capabilities were compelled to take credits, which eventually they were unable to pay back. Meanwhile, the wealth of the rich (I'm sorry, did someone say "job creators"?) was increased to such an extent that they would invest significant amounts into presumably highly profitable (but also very volatile) credit deals. When the credits stopped being served by a significant number of debtors, the whole system would collapse.
The authors are also proposing some solution to the situation. They argue that workers and employees should be paid such a level of salaries as to allow them a minimum level of living standard without taking credits. Now, the objection is that with increasing their income their needs would automatically increase as well, and this does make sense, but only to some limited extent. The data shows that the usual consumption levels of the wealthy would rise at a slower rate compared to their income, and the remaining extra money they'd rather invest into speculative deals and luxurious items, as opposed to actually fueling the engine of the economy.
Sources:
http://www.smarterearth.org/content/inequality-leverage-and-crises
They investigated the economic data around the two biggest financial crises in modern history (1929 and 2008). In both cases they concluded that the crisis happened when the "scissor" between the rich and poor was opened too widely, until at some point it turned out that the top-5% layer was in possession of 34% of the wealth. That was coupled with a simultaneous increase of the share of private credits - in fact it doubled.
They argue that the logic is very simple. In order to sustain the tempo of consumption, people with weaker financial capabilities were compelled to take credits, which eventually they were unable to pay back. Meanwhile, the wealth of the rich (I'm sorry, did someone say "job creators"?) was increased to such an extent that they would invest significant amounts into presumably highly profitable (but also very volatile) credit deals. When the credits stopped being served by a significant number of debtors, the whole system would collapse.
The authors are also proposing some solution to the situation. They argue that workers and employees should be paid such a level of salaries as to allow them a minimum level of living standard without taking credits. Now, the objection is that with increasing their income their needs would automatically increase as well, and this does make sense, but only to some limited extent. The data shows that the usual consumption levels of the wealthy would rise at a slower rate compared to their income, and the remaining extra money they'd rather invest into speculative deals and luxurious items, as opposed to actually fueling the engine of the economy.
Sources:
http://www.smarterearth.org/content/inequality-leverage-and-crises
Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 7/8/11 22:15 (UTC)Your analysis of the original post, further down is also disingenuous. Both authors are actually mentioning the bubble and the market manipulations that created it, they are in fact not saying that the cause was "Jane's inability to buy" but rather the market manipulators reactions to lack of accumulative force in Jane and the likes of her.
There are whole websites in response to the Austrian Business cycle, it could be like playing tennis, only with fancier words that would fool people in here that we actually know exactly the outcome of all our systems. The fact is that economics isn't that accurate a science, otherwise whole schools contradicting each other wouldn't arise.
It would be better if you
a) didn't assume that everyone that doesn't follow the Austrian school is ignorant, there are societies that don't follow it and have a working economy. There might even be more than one well working system in the world.
b) Didn't post links to Austrian economics as "proof". Just as it it's kind of moot for someone to send links to other schools as proof.
These are just my own very personal annoyances with you. You will of course carry on as you prefer in the end.
Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 8/8/11 11:55 (UTC)No kidding :)
Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 8/8/11 15:39 (UTC)Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 8/8/11 15:50 (UTC)Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 8/8/11 20:41 (UTC)Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 8/8/11 20:57 (UTC)Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 9/8/11 09:04 (UTC)Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 9/8/11 18:18 (UTC)The underlying, unquestioned premise behind that statement is that economic policy really controls human life. It doesn't. It can cause distortions, injustices, and various other calamities and injuries to human society, but economic policy backed by force doesn't actually control human action, all things considered. The economy will "work" as long as people are alive. People traded and maintained a thriving black market even in the Mordor of the Union of Soviet Socialist Republics. Just because some pack of bureaucrats with an army have decreed socialism doesn't mean that socialism "works" merely because everyone hasn't fallen over dead from it.
As for your point "b", most of the links I provide are to articles advancing the arguments that I am making. Anyone can go and read them if they are interested and decide for themselves if they constitute "proof" to them or not. I'm all in favor of people doing some digging and thinking and advancing the state of their education. There are plenty of people in here who seem desperately interested in shutting up any opinion with which they do not agree and prefer that people take their word on things without ever doing any original reading of their own. Where do you stand? Your "personal annoyances" do not speak well for the idea that you are not among those discouraging learning more, but I'll let anyone reading the two of us judge that for themselves as well. I'm not interested in the opinions of those who do not think, don't want to think, and don't even understand the pedegree of their own ideas. I will, of course, continue on, as I prefer, as will you.
Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 11/8/11 05:25 (UTC)These societies I'm talking about are thriving right now compared to the US, and most importantly, completely democratic, containing voters who are highly involved in the political process. The word "socialism" and how you interpret it in a modern or older context here, stands for you, I haven't used it.
Second section of block text:
As I said, you do as you want, but my experience with T_P is that people are very well read and actually know where to find most basic websites, such as the ones you refer to, *and* they know about your "isms" and preferences. Your "recommendations" therefore look dated and even patronizing, like a good ol' boys' pat on a politiclly active adult's head.
My annoyance is aoubout this particular discrepancy, and the thorough preachyness of your style, not with your political preferences. I dare say I've had meaningful exchanges with people of your vein relatively often in here.
Who do you think is interested in "shutting down oposite opinions" in here? I don't recongnize much of that at all, on the contrary I find most people are well read in here and willing to discuss, and I mean that from all kinds of political preferences. If you feel you've been responded to in other ways (as in ppl not responding to you, or not readng your texts, or providing ones of their own), you may want to carefully explore the possibility of your own style of reasoning in here being taken into the equation.
Willingness to communicate two ways is an artform hard to cultivate.
Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 11/8/11 06:11 (UTC)Despite the exceptions, most people who argue politics are not even familiar with the pedegree of their own ideas, let alone the ones with which they disagree. Be that as it may, some may have not been exposed to the ideas being discussed and may be curious. The links are for them. Anyone feeling as if they are already an expert or do not care to know any more on the topic are free not to follow them. I would say this respects their wishes better than filling half a page with quoted excerpts. At any rate, you are castigating me for doing nothing more or less than what the OP has done: stating a position and posting links to additional material and more detailed information. I responded in kind. The OP seems to believe that the sources she cited are onto something novel. They are not. I posted a link showing where the same ideas have been addressed and debated decades ago, something which can be accepted as fact or not regardless of which side one takes on the substance of the debate itself. This would seem to torpedo your presumption that everyone reading this page is already an expert. Either the OP did not know the topic under consideration was not a novel idea, or else she did know and was hoping others did not know and was trying to put one over on them, or she disagrees with my assertion that the explaination she cited is not novel, being new or unique in essential characteristics which offer a different line of reasoning from the prior debate. I certainly haven't heard this third position advanced.
Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 11/8/11 07:10 (UTC)Wow, way to project.
Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 11/8/11 14:35 (UTC)If that does NOT indicate that you believe their ideas to be novel then feel free to correct that impression but that is certainly what the plain text of what you've written implies.
Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 11/8/11 18:43 (UTC)Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 11/8/11 21:26 (UTC)Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 11/8/11 21:36 (UTC)Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 12/8/11 00:30 (UTC)Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 11/8/11 06:28 (UTC)The styles of discussion in this forum vary quite broadly. I'm not complaining: I respond where I feel inclined and I ignore whatever I feel to be beneath comment. When you start castigating the people posting the silly macros and the mee-toos and attaboys, and offering no substantial contribution to the discussion beyond their single line unsupported assessments of the commenter's intelligence, then I'll take your rebuke in a more serious vein. As it is your complaints seem to be reserved for someone whose opionions you don't like. For all of my supposed "preachiness" I do make the attempt to remain civil. If I have failed here and there in that aim then all I can say is that I am human and obviously in good company, from what I have seen, again not that I am complaining. There have been some pretty engaged commenters and lengthy threads which have been initiated from an idea I tossed into the ring in here, sometimes on topics that were getting almost no play at all until I commented. All in all, I'd say I'm engaged in raising issues people are at least interested in discussing.
Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 11/8/11 07:13 (UTC)Re: Socialist thinking is fundamentally a reversal of cause and effect
Date: 11/8/11 14:37 (UTC)