Credit <=> crisis

[ddstory.livejournal.com]

We 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

Comments

[underlankers.livejournal.com]

Nope, I'd actually be rather more blunt in this discussion with say, Rasilio. Libertarians hail as heroes advocates of the gold standard and segregation, they get judged by that. Green Party types have Cynthia McKinney and Ralph Nader and they get judged by *that*.

[jerseycajun.livejournal.com]

You have me at a disadvantage then, because as a rule I try to judge the words of the person I'm talking to only, whereas you feel free to assign guilt by association, without even having the decency to discern if the comparison is worthy beyond a single broad descriptor for the specific person you're speaking to. It's not rational, and furthermore its undignified.

I'm a person with strong libertarian leanings. Shockingly from a concept that is broadly focused on individual rights and liberty, a wide variety of individual interpretations of what that means in turn ends up creating lots of differences of opinion depending on what specific subject matter is. Look in the friggin archives over on the Libertarianism board back when it was more active and you'll find no end of heated debates and dissent, yes even over the gold standard.

A little humility here goes a long way. Are you up to having enough to dignify a person on their own example instead of those of a perceived third-person/party?

[underlankers.livejournal.com]

I'm up for the standard of saying if you vote it, you bought it. I did vote for Obama but then I already knew he was an ordinary politician whose primary virtues were in not being John McCain and in having an idiot damn fool Veep who could write clear English and speak clear English. I didn't expect him to work miracles, I expected him to be better than his opponents which he's proven himself to be.

[jerseycajun.livejournal.com]

No, your standard goes further into suggesting you have special knowledge of why they voted for "x".

You've nicely explained why you voted for Obama, because you are intimately aware of your own thoughts, but a fair use of your own standard on my part would give me free authority to assign to you support of everything or everything that emanated from the man's mouth in getting elected, without so much as, you know, asking you what went into that decision.

The mere fact that you felt compelled to explain your reasoning (unprompted I might add) for voting for Obama at least tells me you have some instinctive understanding in what I'm saying is true. It is fundamentally at odds with the notion that the act of casting a vote (or calling yourself Republican, Democrat, Independant or libertarian) tells you everything important you need to know about the specific opinions and beliefs of the voter on any and all issues.

If you can't see this, then we're done until the blinders come off, I'm afraid.

[underlankers.livejournal.com]

Yes, they do. This is what their own statements say. If you're calling them liars appealing to the most base sections of the population for personal gain, then that's fine, too. It means they really don't believe what they say and are liars who simply are trolling.