BONDS MAY BE DEFYING DIRE FORECASTS

BUT THEY ARE NOT DEFYING LOGIC

(Part One)
Antal E Fekete
New Austrian School of Economics

Courtesy of Professor Fekete.com:

The title of Sy Harding’s article (Gold Eagle, January 31) says it all: “Bonds Defy Dire Forecasts”. But as I have been saying for years, bonds have not been defying logic, Greenspan’s cliché “conundrum” notwithstanding. The behavior of the bond market has been consistent with Keynesianism. By his compassionate phrase “euthanasia of the rentier” Keynes meant the reduction of the rate of interest, to zero if need be, as part of the official monetary policy to deprive the coupon- clipping class of its “unearned” income. Perhaps it is not a waste of time to repeat my argument why, in following Keynes’ recipe, the Fed is acting contrary to purpose. While wanting to induce inflation, it induces deflation.

The main tenet of Keynesianism is that the government has the power to manipulate interest rates as it pleases, in order to keep unemployment in check. Keynes argued that the free market economy was unstable as it was open to the swings of irrational investor optimism or pessimism that would result in unpredictable and wild fluctuation of output, employment and prices. Wise politicians guided by brilliant economists − such as, first and foremost, himself − had to have the power “to prime the pump” (read: to pump up the money supply) as well as the power to “fine-tune” (read: to suppress) the rate of interest. They had to have these powers to induce the right amount of spending needed to put people to work, to entice entrepreneurs with ‘teaser interest rates’ to go ahead with projects they would otherwise hesitate to undertake. Above all, politicians had to have the power to unbalance the budget in order to be able to help themselves to unlimited funds to spend on public works, in case private enterprise still failed to come through with the money.

However, Keynes completely ignored the constraints of finance, including the elementary fact that ex nihilo nihil fit (nothing comes from nothing). In particular, he ignored the fact that there is obstruction to suppressing the rate of interest (namely, the rising of the bond price beyond all bounds) and, likewise, there is obstruction to suppressing the bond price (namely, the rising of the rate of interest beyond all bounds). Thus, then, while Keynes was hell-bent on impounding the “unearned” interest income of the “parasitic” rentiers with his left hand, he would inadvertently grant unprecedented capital gains to them in the form of exorbitant bond price with his right. Continue reading

NEW AUSTRIAN ECONOMICS MANIFESTO

I was fortunate enough to be at the launch of the New Manifesto. From this memorable time I understood that if we do not like the reality set before us, we must change it or accept the consequences. Courtesy of Professor Fekete.com:

July 4, 2013
Formally adopted at the Seminar held in the British Museum, London, on October 6, 2013

In a recent pamphlet Llewellyn H. Rockwell, President of the Mises Institute writes that we are all ceaselessly being bombarded by the media and college educators with propaganda to the effect

“that capitalism causes depressions and exploits the poor. That government is our salvation, and the bureaucrat a hero. That America owes its wealth to the Federal Reserve. That without massive regulation we’d be sunk…That cutting government even a smidgen and permitting free markets would be a disaster… John Maynard Keynes died more than 60 years ago, but his ideas still rule us from the grave: give government more power, and print more money…”

It is a pleasure to acknowledge that Mises University, the Mises Institute’s week-long summer program for students has done an outstanding service to society in flouting the conventional wisdom about government, and explaining the logic behind free enterprise. Continue reading

The UK’s “new economic model” – deferred or dumped?

Courtesy of Prime Economics:

The UK economy has – in terms of GDP – performed somewhat better in 2013 than almost all analysts expected. That includes us in PRIME. But the “growth” – which looks like being around 1.75% year on year – is nothing like as large or as entrenched for the future as many commentators want to persuade us. It comes after a year (2012) of utterly dismal economic performance, due largely to the austerity policy of the government, in which real GDP per head of population fell again, with GDP rising by just 0.25%.

But here we go again. Chancellor George Osborne tells us – 16 months ahead of the next General Election – that we must cut public spending by a further £25 billion after the election. Whatever the state of the economy. The problem, he claims, is public spending. Yet the austerity policies pursued – though not as severe as the Eurozone’s masochistic policies – have contributed directly and significantly to the UK’s weak economic performance till mid 2013.

Let us travel back in time to February 2010, less than 3 months before the last General Election. George Osborne delivers the Mais Lecture. In it he says:

“We have to move away from an economic model that was based on unsustainable private and public debt. And we have to move to a new model of economic growth that is rooted in more investment, more savings and higher exports.”

First, note that – at that time – Mr Osborne was rightly concerned about the level of private debt as well as public debt. While private debt has slightly declined, the ‘deleveraging’ has been modest over the last 3 years. But ever since he became Chancellor, he and his government have turned a blind eye to private debt, concentrating solely on public debt.

And as regards more investment and higher (net) exports, well, see below.

So the big question is whether the ‘new’ economic model promised has been ditched in favour of, well, the old economic model – and indeed whether either model is right for Britain today.

BBC Business Editor Robert Peston puts it nicely today in his blog:

“Households are behaving in a way that Keynesian economists say the chancellor should have been acting. And the chancellor has on the kind of hair shirt that consumers should perhaps still be wearing, given that they went so spending and borrowing bonkers in the boom years.”

Let’s look a bit deeper.

Continue reading

Culture of Ignorance – Part One

The first revolution will not be televised, that is the revolution of the mind and of consciousness. Courtesy of The Burning Platform :

“Five percent of the people think;

ten percent of the people think they think; 

and the other eighty-five percent would rather die than think.”

– Thomas Edison

The kabuki theater that passes for governance in Washington D.C. reveals the profound level of ignorance shrouding this Empire of Debt in its prolonged death throes. Ignorance of facts; ignorance of math; ignorance of history; ignorance of reality; and ignorance of how ignorant we’ve become as a nation, have set us up for an epic fall. It’s almost as if we relish wallowing in our ignorance like a fat lazy sow in a mud hole. The lords of the manor are able to retain their power, control and huge ill-gotten riches because the government educated serfs are too ignorant to recognize the self-evident contradictions in the propaganda they are inundated with by state controlled media on a daily basis.

 

“Any formal attack on ignorance is bound to fail because the masses are always ready to defend their most precious possession – their ignorance.”

– Hendrik Willem van Loon

Continue reading

The modern phenomenon of nonsense jobs

Ever get that feeling that the system we live in is created to reward the incompetent and disadvantage those with skills we need? Is there any need for us to work such long hours when ‘money’ is created by the click of a button with usury added for extra repression? Courtesy of the Sydney Morning Herald::

In 1930, John Maynard Keynes predicted that, by century’s end, technology would have advanced sufficiently that countries like Britain or the United States would have achieved a 15-hour working week. There’s every reason to believe he was right. In technological terms, we are quite capable of this. And yet it didn’t happen. Instead, technology has been marshalled, if anything, to figure out ways to make us all work more. In order to achieve this, jobs have had to be created that are, effectively, pointless. Huge swathes of people in the Western world spend their entire working lives performing tasks they secretly believe do not really need to be performed. The moral and spiritual damage that comes from this situation is profound. It is a scar across our collective soul. Yet virtually no one talks about it.

Why did Keynes’s promised utopia – still being eagerly awaited in the 1960s – never materialise? The standard line is he didn’t predict the massive increase in consumerism. Given the choice between less hours and more toys and pleasures, we’ve collectively chosen the latter. This presents a nice morality tale, but even a moment’s reflection shows it can’t really be true. Yes, we have witnessed the creation of an endless variety of new jobs and industries since the 1920s, but very few have anything to do with the production and distribution of sushi, iPhones or fancy sneakers.

Huge swathes of people in the Western world spend their entire working lives performing tasks they secretly believe do not really need to be performed.

So what are these new jobs, precisely? A recent report comparing employment in the US between 1910 and 2000 gives us a clear picture. Over the course of the last century, the number of workers employed as domestic servants, in industry, and in the farm sector has collapsed dramatically. At the same time, ”professional, managerial, clerical, sales, and service workers” tripled, growing ”from one-quarter to three-quarters of total employment”. In other words, productive jobs have, just as predicted, been largely automated away (even if you count industrial workers globally, including the toiling masses in India and China, such workers are still not nearly so large a percentage of the world population as they used to be).

But rather than allowing a massive reduction of working hours to free the world’s population to pursue their own projects, pleasures, visions and ideas, we have seen the ballooning not even so much of the ”service” sector as of the administrative sector, up to and including the creation of whole new industries such as financial services or telemarketing, or the unprecedented expansion of sectors such as corporate law, academic and health administration, human resources and public relations. And these numbers do not even reflect on all those people whose job is to provide administrative, technical or security support for these industries, or for that matter the whole host of ancillary industries (dog-washers, all-night pizza-delivery drivers) that only exist because everyone else is spending so much of their time working in all the other ones.

It’s as if someone were out there making up pointless jobs just for the sake of keeping us all working. And here lies the mystery. In capitalism, this is precisely what is not supposed to happen. Sure, in the old inefficient socialist states, such as the Soviet Union, where employment was considered both a right and a sacred duty, the system made up as many jobs as it had to (this is why in Soviet department stores it took three clerks to sell a piece of meat). But, of course, this is the sort of very problem that market competition is supposed to fix. According to economic theory, at least, the last thing a profit-seeking business is going to do is shell out money to workers they don’t really need to employ. Still, somehow, it happens.

While corporations may engage in ruthless downsizing, the lay-offs and speed-ups invariably fall on that class of people who are actually making, moving, fixing and maintaining things; through some strange alchemy no one can quite explain, the number of salaried paper-pushers ultimately seems to expand, and more and more employees find themselves, not unlike Soviet workers actually, working 40 or even 50-hour weeks on paper, but effectively working 15 hours just as Keynes predicted, since the rest of their time is spent organising or attending motivational seminars, updating their Facebook profiles or downloading television series.

The answer clearly isn’t economic: it’s moral and political. The ruling class has figured out that a happy and productive population with free time on its hands is a mortal danger (think of what started to happen when this even began to be approximated in the 1960s). And, on the other hand, the feeling that work is a moral value in itself, and that anyone not willing to submit themselves to some kind of intense work discipline for most of their waking hours deserves nothing, is extraordinarily convenient for them.

Once, when contemplating the apparently endless growth of administrative responsibilities in British academic departments, I came up with one possible vision of hell. Hell is a collection of individuals who are spending the bulk of their time working on a task they don’t like and are not especially good at. Say they were hired because they were excellent cabinetmakers, and then discover they are expected to spend a great deal of their time frying fish. Nor does the task really need to be done – at least, there’s only a very limited number of fish that need to be fried. Yet somehow they all become so obsessed with resentment at the thought that some of their co-workers might be spending more time making cabinets, and not doing their fair share of the fish-frying responsibilities, that before long there’s endless piles of useless, badly cooked fish piling up all over the workshop and it’s all that anyone really does.

I think this is actually a pretty accurate description of the moral dynamics of our own economy.

Now, I realise any such argument is going to run into immediate objections: ”Who are you to say what jobs are really ‘necessary’? What’s necessary anyway? You’re an anthropology professor, what’s the ‘need’ for that?” (And indeed a lot of tabloid readers would take the existence of my job as the very definition of wasteful social expenditure.) And, on one level, this is obviously true. There can be no objective measure of social value.

I would not presume to tell someone who is convinced they are making a meaningful contribution to the world that, really, they are not. But what about those people who are themselves convinced their jobs are meaningless? Not long ago, I got back in touch with a school friend whom I hadn’t seen since I was 12. I was amazed to discover that, in the interim, he had become first a poet, then the frontman in an indie rock band. I’d heard some of his songs on the radio having no idea the singer was someone I actually knew. He was obviously brilliant, innovative, and his work had unquestionably brightened and improved the lives of people all over the world. Yet, after a couple of unsuccessful albums, he’d lost his contract and, plagued with debts and a newborn daughter, ended up, as he put it, ”taking the default choice of so many directionless folk: law school”. Now he’s a corporate lawyer working in a prominent New York firm. He was the first to admit that his job was utterly meaningless, contributed nothing to the world, and, in his own estimation, should not really exist.

There’s a lot of questions one could ask here, starting with: what does it say about our society that it seems to generate an extremely limited demand for talented poet-musicians, but an apparently infinite demand for specialists in corporate law? (Answer: if 1 per cent of the population controls most of the disposable wealth, what we call ”the market” reflects what those people think is useful or important, not anyone else.) But even more it shows that most people in these jobs are ultimately aware of it. In fact, I’m unsure I’ve ever met a corporate lawyer who didn’t think their job was bullshit. The same goes for almost all the new industries outlined above. There is a whole class of salaried professionals who, should you meet them at parties and admit that you do something that might be considered interesting (an anthropologist, for example), will want to avoid even discussing their line of work entirely. Give them a few drinks, and they will launch into tirades about how pointless and stupid their jobs really are.

This is a profound psychological violence. How can one even begin to speak of dignity in labour when one secretly feels one’s job should not exist? How can it not create a sense of deep rage and resentment? Yet it is the peculiar genius of our society that its rulers have figured out a way, as in the case of the fish-fryers, to ensure that rage is directed precisely against those who actually do get to do meaningful work. For instance: in our society, there seems a general rule that, the more obviously one’s work benefits other people, the less one is likely to be paid for it. Again, an objective measure is hard to find, but one easy way to get a sense is to ask: what would happen were this entire class of people to simply disappear? Say what you like about nurses, rubbish collectors or mechanics, it’s obvious that, were they to vanish in a puff of smoke, the results would be immediate and catastrophic. A world without teachers or stevedores would soon be in trouble, and even one without science-fiction writers or ska musicians would clearly be a lesser place. It’s not entirely clear how humanity would suffer were all private equity chief executives, lobbyists, public relations researchers, actuaries, telemarketers, bailiffs or legal consultants to similarly vanish. (Many suspect it might markedly improve.) Yet, apart from a handful of well-touted exceptions (doctors), the rule holds surprisingly well.

Even more perverse, there seems to be a broad sense that this is the way things should be. This is one of the secret strengths of right-wing populism. You can see it in Britain, when tabloids whip up resentment against transport workers for paralysing London during contract disputes: the very fact that the workers can paralyse London shows that their work is actually necessary, but this seems to be precisely what annoys people. It’s even clearer in the US, where Republicans have had remarkable success mobilising resentment against schoolteachers or car workers (and not, significantly, against the school administrators or car industry managers who actually cause the problems) for their supposedly bloated wages and benefits. It’s as if they are being told:

”But you get to teach children! Or make cars! You get to have real jobs! And on top of that you have the nerve to also expect middle-class pensions and healthcare?”

If someone had designed a work regime perfectly suited to maintaining the power of finance capital, it’s hard to see how they could have done a better job. Real, productive workers are relentlessly squeezed and exploited. The remainder are divided between a terrorised stratum of the, universally reviled, unemployed and a larger stratum who are basically paid to do nothing, in positions designed to make them identify with the perspectives and sensibilities of the ruling class (managers, administrators, etc) – and particularly its financial avatars – but, at the same time, foster a simmering resentment against anyone whose work has clear and undeniable social value. Clearly, the system was never consciously designed. It emerged from almost a century of trial and error. But it is the only explanation for why, despite our technological capacities, we are not all working three to four-hour days.