Double Dip Recession

[Voidka]

So if the Tories dont have a Plan B, what are they going to do now? (Not including blaming the last government even though they have been in power themselves for 2 years!)

Dear MMMouse,

I'm interested in your last post. I'm wondering how more resources can be directed towards innovation / manufacturing when that requires investment. Austerity means a loss of public jobs but also a lack of confidence to initiate new business ventures.

I also had not thought about large businesses like Virgin instead of expanding core business were diverting into banking.

I heard today that last year there was a 40% rise noticed in chief executive pay despite fall in growth and profit in the private sector. Compare this to all the public servants who lost their jobs. This is not sustainable wage growth and does not help a business so why are shareholders not bleeting louder? It seems to me to be blatantly corrupt.

All those in favour of the free market, how do you see these extreme wage inequities as something positive? I forsee it will cause another crisis of some kind.

I heard today that last year there was a 40% rise noticed in chief executive pay despite fall in growth and profit

That's a really good point because it illustrates perfectly that the money/capital isn't and hasn't been reinvested into growing businesses. Bob Diamond is getting a ticking off by the Barclays shareholders now. The thing is there has been a move towards rewarding through shares rather than hard cash but this is also a case of financialization of capital.

I keep hearing in the news that shareholders are holding CEOs to account but shareholding is actually part of the problem. I really like the idea of co-operatives where everyone owns a share of the company and profits from their own work.

I agree with cooperatives but in a system where all sorts of business models are in the market, how can this excessive pay continue to dominate?

I also think shareholders want profit not fairness but the extremity of the increase in pay shocks me and I'm sure does even those rather profit hunting shareholders.

The allowance of such excessive pay is inexplicable to me. The banking industry knows they are losing profit due to inflated pay. Where will this end?

I tend to be a positive person so I do see at some point this will change but I wonder when and how?

why are shareholders not bleeting louder?

Because modern companies with turnover of tens of billions pounds is an absolutely different world to model shareholders of a pub with 1m turnover you probably keep in mind. And are making more money on dramatic falls than on stable growth.

The difference is that the police & army in a democratic/capitalist society do not go around using violence on its own citizens unless a crime has been committed. Even then there is due legal process and you must be tried and convicted by an independent judiciary.

niceguy2 that made me laugh! Do you really believe that?

Allesio comes across as a psychopath. Scary.

Daffodilly, I hope you are right but being a bit of a cynic I don't think anyone will stop and make the link btw individual greed and avarice and the bigger picture.

One of the major problems for this crisis is a slump in demand but this is a flaw within capitalism itself because even if you increase wages/social security payments the total wage bill is always less than the total capital in circulation.

At the moment it could be said that we need to open up new consumer markets for yesterdays goods. However if areas like the south east increase wages to stimulate demand, (esp china) it undercuts its own global competetive advantage. That is why china would rather lend money to the west than create its own consumer demand internally.

Will Europe stick to austerity? What do you all think?

There is some fantastic doublethink going on here. On the one hand, executive pay and bonuses must be capped because they are too high and, therefore, somehow wrong. On the other hand, you want these same businesses to become co-operative partnerships meaning that, in the real world without shareholders to 'share' some of these excessive profits, the executives? pay and bonuses will be even higher.

I know you believe pay and bonuses to be too high but, from the left's perspective (and I disagree with the left on this), the problem isn't with how the companies are organised; the problem is with the size of the profits themselves. You really do need to understand, and I mean with a greater understanding than the typical Guardian columnist level of understanding, what co-operatives actually are, how they differ from publicly limited companies, how the free market should work, how it actually works, why it works in the way that it does and what happens when you incentivise (subsidise) or de-incentivise (tax) the free movement of capital.

Until you understand this you will continue to thrash around looking for a silver bullet to the world's woes, getting nowhere.

Daffo, I think austerity will stay. There's a realisation now that countries cannot be in perpetual debt and that their budgets must balance over time. Certainly in some countries, Greece being the prime example, the state was completely out of control and was literally haemorrhaging money.

That said, I think there will also be a change in strategy to promote investment to stimulate growth. So road building, tunnel building that sort of thing. But the age of throwing money on welfare projects, pensions and pet political vanity projects is pretty much over.

Hands up who reads the Guardian? I don't.

I am thinking of reading Ricardo Next, anyone up for a an economics book club.

Major Crisis since 1970. There may be others I haven't mentioned, not an exhaustive list.

1973, UK/Us property market, fiscal debt crisis, Oil price hike.

79-82 Inflationary surge, tackled by breaking the unions and imposing stagnating wages and high unemployment.

82-90 Developing countries debt crisis caused by the volker high interest rate shock.

1984 Collapse of several US banks, bailed out by the fed and pretty much hushed up

84-92 Closure and rescue of over 3000 financial institutions.

1987 the bank of england and the fed bailed out banks

1990 Property market nordic states & more bank bailouts by governments in US

1994 Rescue the mexican currency because america depended upon it.
1997 Asian currency crisis

1998 Long term capital management bail out

98-2002 Dot com bubble, more bank collapse notably enron
2007-10 Current crisis

So as you can see, capitalism is in grand health.

Mini, I expect the answer to be that crises are all caused by state limitations of the free market. Even when a crisis was caused by deregulation (say, the latest one), the regulation is still to blame. Only truly free market (never ever seen by anyone) is a best cure for all economy problems.

Watch out, any apology of free market usually has one unspoken but always existing convention: when a human dies, it's just fine. Natural wastage of excessive recourse.

Yet despite all of the above mini, capitalist economies have outperformed every socialist/communist economy. Full stop.

The biggest economies in the world are all based around capitalism. The standard of living even for the poorest are better than what you'd see in Cuba/North Korea (about the only controlled economies left). That said, even Cuba is playing around with free market reforms now.

China is case in point. Despite having one of the largest countries in the world and the biggest population, when they had a command economy they couldn't feed their own population. They'd have been the laughing stock of the world, had it been a laughing matter. Yet some twenty years later after adopting free market/capitalist reforms they're poised to be the biggest economy in the world, certainly they are the richest now.

Is capitalism perfect? No. It's wasteful and does not spread wealth equally. But it's a damn sight better than the alternative. The alternative doesn't work and every country that has tried command economies have only prolonged their existence with the use of a large state security system which uses fear to keep the population in line.

Booms & recessions are natural features of free market economies. Governments are supposed to keep money aside during the good times to use during the bad, to smooth out the edges. Some countries like Norway did that. Unfortunately our last PM thought he was cleverer, had abolished boom & bust so spent all our money during the good times and left the cupboard bare for the bad.

I think one of the main obstacles to almost any discourse is the fact that the command economies of china and USSR not only failed because of outside pressure but also because of internal mismanagement.

I would be the first to agree with you. However as Ms Average points out allowing the free market to dictate all conditions of human life incl sifting through and eliminating humans as though they were garbage is not humane.

I can accept differences of opinion but when I see someone like Bob Diamond wracking up bonuses in the millions, I would without a second thought, like to see him and his class up against the wall. They don't give tuppence whether children are dying in Africa or women work for 18hrs for little more than $1.25 a day.

The chinese have a massive economy but they now have a massive welfare issue that they didn't have before.

I disagree that USSR/China failed because of external pressures. They both had big enough populations and land/resources to manage very well without outside pressures. Just look at where much of the natural resources come from now. 90% of the worlds precious metals like platinum comes from China. We import our gas from Russia. They were never tapped at all until they both took on capitalist reforms.

Mismanagement happens because politician's are only good at one thing. Politics. They make crappy entrepreneurs. They have no incentive to keep companies efficient, in fact quite the reverse.

I'm not arguing that we should have a totally free economy with no checks & balances. Just that we should accept that the model we have now is better than the alternatives, which have never worked and never will.

Lastly a forced redistribution of wealth from the likes of Bob Diamond to the poor & starving in Africa doesn't really fix the problem does it? Take his millions and spread it around. You may buy some a meal for the day but it's just a short sighted fix. Plus you dissuade many other entrepreneurs from taking risks and creating jobs for others.

The best model I think is neither pure socialism nor free market. For me the best model is mainly free market with govt regulating the bare minimum required.

Mismanagement happens because politician's are only good at one thing. Politics YY

Hands tied, blind fold on, led like lambs. A days work seems to be, manage the press more rather than the economy, snipe at each other from either side of the house like schoolboys and hoover up gin at our expense.

The precious metals and resources in china, in order to cash in on these resources they had to open up to the free market. This wasn't done so they could provide for their people though.

I'm not in favour of isolationism, it isn't healthy on any level. I think we both agree on that. The root of the problem lies with money and private property

We have NEVER witnessed true socialism, some anthropologists have studied small remote tribes and noted that they live in a way which is based on socialist principles. Of course these tribes are isolationist and totally remote so therefore haven't had outside pressure.

It seems to me that, as minimmathsmouse pointed out, people justify their own individual greed to the extent they don't see the link between that and the bigger picture. After all, why should Bob Diamond or anyone else give up any of their wealth when it would only make a tiny dent in anyone else's situation? Why should anyone give up any of what they have for anyone else, when that doesn't encourage entrepreneurs? Why should anyone have anything other than greed as their guiding principle? Surely governments are strong enough to overcome this and come up with sensible legislation to rein it in without any effort whatsoever being made at self control by the people who elect them?...

Surely we can all just rely on charity to sort out the tiresome thinking of others rubbish that doesn't interest us or make us any money? After all, it worked so brilliantly in the past...

And as for China. Wasn't that a mess before communism even got its hands on it? And wasn't Russia a mess before communism, too? And isn't the excuse that Russia is still a mess that it takes a long time to build something up from a mess?

minimathsmouse

No, we have witnessed true socialism. Every failed socialist state had true socialism. North Korea, Cuba, the Soviet states - all true socialist states, with the brutality, disregard for Liberty, low living standards and dismal pollution that inevitable follows.

Socialism in small social groups can work because it's voluntary and not coercive. Everyone knows everyone else, everyone has a vested interest in everyone else's success. Socialism in countries cannot work because it has to, by its very nature, be co-ercive.

That's exactly it, flatpackhamster - it needs to be voluntary. If we were all voluntarily less selfish, we'd all be much happier.

Yes rabbit I agree on that statement. Unfortunately human nature means that's not the case.

rabbitstew

I'm sure we would be happier. But what's happened is that Big State has stripped us of any reason to be less selfish. 100 years ago my nearest town had a public swimming bath built. It had facilities for anyone to come and wash, bathe, clean their clothes etc. The great and the good paid for it. No taxpayers' money went near it. Those rich people could see the difference their tax made.

Nowadays the tax money comes straight out of our salaries, and straight in to government, who spend it in an invisible way. How much of my tax goes to help the people where I live? The square root of eff all, is the answer to that.

So by centralising and nationalising tax - and socialising it - you rip away the localism and the feeling of 'My money makes a difference' that creates that willingness to donate. Socialism leads to selfishness.

No we haven't witnessed true socialism/communism because those states that tried to take that path came up against huge pressure from within and without, ie the coercion.

Have we forgotten the cold war? we created a bogey man, a fear within ordinary people that a great threat loomed large. Of course the threat wasn't to us, the threat was to capital accumulation. It also fed into the need for governments to engage in an arms race that cost billions, rather than feed and educate, we spent billions with private companies on arms. The public/private nexus to spread fear and create private profits.

Now we have a new bogey man, Islamic extremists.

A socialist state would not have a money economy and wouldn't need coercion. We will only experience socialism when several spheres of thought, experience and material fact are in accord. We need to change the way we conceptualise private property and it's relationship with power. First we need to understand the link and then we need to overcome those obstacles and it can not be done by force.

I don't think human nature is 100% greed and selfishness, though, niceguy2. And society as a whole can encourage more or less greed through the way it is structured and led. At the moment, it seems the pendulum has swung too far in the direction of personal profit being the only worthy motivator for getting anyone out of bed in the morning and anyone with alternative motivations must be weird, possibly bordering on dangerous.

Socialism leads to selfishness no the obsessive nature of private property acquisition leads to selfishness.