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    sw2boro's General Muddle of Economics

    Ok, I’ve promised an all over the place post on economics. I’ve never had a minute’s formal Economics education in my life, most of it has come from reading history, the broadsheets and the occasional stint of reading the Economist etc. I’ve done a bit of Finance work and as some may have guessed work in a job that involves numbers and some applied microeconomics.

    There’s a few strands to what I want to say, and maybe each deserved their own post, but my ego won’t have it.

    Is Fordism dead? Or about to be?As resources are apparently getting scarcer and more of the world accepts we have to consume less, unless we have a few new juicy technological breakthroughs, that model of mass production and paying the workers enough to consume the production in a virtuous circle is surely bust?

    And linked to that, I read something that suggested that the post 9/11 recession that never really materialised was because there’s now such a large class of the super-rich who could just afford to just keep on spending that in a vulgar Keynesian way (my term – a better one no doubt exists) kept the economy pumping. Seem fair enough? And did the economic Vietnam of last year thin their ranks out a little so that this hasn’t happened this time?

    Which leads me onto the stagnation of Japan over the past fifteen or so years. I’m sure there are all kinds of contributory factors, but I’ve read a few times that Japan’s econmic success after WWII had an awful lot to do with the Korean War and its proximity to this warzone. Demand for munitions, Jeeps being the main item singled out, helped with a vulgar Keynesian bellows effect that had the economy roaring and roasting chestnuts. As this started to wear off, the Vietnam War got it going again. So, did this then wear off as the Nineties got under way?

    And so, could it be argued that it may well suit the British national interest (a term I’m not happy with for all kinds of reasons, but you know what I’m getting at) for some kind of major war to take place which the UK (I know, not the same as Britain) could produce goods for etc.? You know, as the UK, as I understand it, is broadly in decline relative to other industrial nations and this would be slowed if WWIII is not that much of a European affair. Not that I’ve got my fingers crossed or anything, I’m just a bit interested in this type of thing.

    And finally, as they used to say, maybe still do, there’s that idea that the masses tend to make gains as far as freedom and economic well-being go after major wars – say the NHS after the Second World War, but other examples exist. Partly due to increased “muscle” and radicalism, partly due to a coming together of classes and recognition of a blood debt, that type of thing. Does this stand up to any kind of intellectual rigour?
    And that as we move further away from the conditions that cause these gains, from that side of the fence, the gains are eroded, with yer Thatcherism and so on?

    Scalpels and cold water at the ready.

    #2
    sw2boro's General Muddle of Economics

    And linked to that, I read something that suggested that the post 9/11 recession that never really materialised was because there’s now such a large class of the super-rich who could just afford to just keep on spending that in a vulgar Keynesian way (my term – a better one no doubt exists) kept the economy pumping. Seem fair enough?
    With all the usual caveats about my formal economics training being no more than yours, my understanding of the data is that a more serious recession was avoided largely because of a pretty much unprecedented gain in productivity in the US. This was accompanied by real wage declines for much of the 2000s, meaning that corporate profits took a much higher share of GDP than before. And the to-be-expected strain on consumer spending from lower real wages was more than offset by the credit boom and very low real interest rates. Of course, this wasn't sustainable.

    Comment


      #3
      sw2boro's General Muddle of Economics

      And finally, as they used to say, maybe still do, there’s that idea that the masses tend to make gains as far as freedom and economic well-being go after major wars – say the NHS after the Second World War, but other examples exist. Partly due to increased “muscle” and radicalism, partly due to a coming together of classes and recognition of a blood debt, that type of thing. Does this stand up to any kind of intellectual rigour?
      Depends where you draw the lines, socially and chronologically. There's no doubt that WWII helped bring the US out of recession, which pretty obviously is "good for the masses". But, equally, the entry of women into the work force en masse during WWII stalled gains for (white) men, viewed as individuals.

      Comment


        #4
        sw2boro's General Muddle of Economics

        I can't believe that GY picked the same one as I was to target first.

        The belief was that the Sovereign Wealth Funds (rich, oil countries typically) and super wealthy were willing to spend. In part, that was true, though arguably later in the cycle than the immediate (Dubai Ports purchases were vast).

        The real factor was that there was an immediate ability to cut interest rates very heavily. The second factor, arguably, was that there was the Dot Com boom and bust before it, meaning that the 9/11 effect was attributed in part to a lag effect from that.

        The management out of it, arguably, was that consumer spending was sustained throughout, and possibly strengthened as a result of 9/11, alongside GY's observation on productivity. The credit boom was the real carry through. This, of course, can be attributed back to the SWF growth - they had money they wanted to invest at yields higher than that available in other securities.

        For a nice home for it, this video offers pretty good coverage of the credit crisis, and reflects on - in part - how any recession in 2001 was avoided. In my opinion, the reason this recession has been hard is that a lot of it is deferred recession from 2001.

        Comment


          #5
          sw2boro's General Muddle of Economics

          sw2boro wrote:
          And so, could it be argued that it may well suit the British national interest (a term I’m not happy with for all kinds of reasons, but you know what I’m getting at) for some kind of major war to take place which the UK (I know, not the same as Britain) could produce goods for etc.? You know, as the UK, as I understand it, is broadly in decline relative to other industrial nations and this would be slowed if WWIII is not that much of a European affair. Not that I’ve got my fingers crossed or anything, I’m just a bit interested in this type of thing.
          The UK manufacturing industry for armaments is pretty poor, from what I understand. Some shipyards, airplane engines certainly (shared across with the US for Rolls Royce), BAE... but little else I know of. Not a strong point of my knowledge by any means though.

          Comment


            #6
            sw2boro's General Muddle of Economics

            sw2boro wrote:
            Is Fordism dead? Or about to be?As resources are apparently getting scarcer and more of the world accepts we have to consume less, unless we have a few new juicy technological breakthroughs, that model of mass production and paying the workers enough to consume the production in a virtuous circle is surely bust?
            This is interesting. I think there's a case to be made that the effects of Fordism have hit a plateau and aren't likely to see an uptick. North America has moved from being a rural, agrarian society to being a highly urbanized one. The underclass has migrated up to the middle class, with the current underclass also enjoying many of the hallmarks of previous generations' ideas of what the middle class could expect: tv, refrigerator, new shoes, a car, etc.

            That said, there's a real question as to where the middle class goes next. Education is touted as the be-all and end-all, yet it's difficult to see where twenty thousand factory jobs will ever be replaced in a similar mass-employment setting. Certainly entrepreneurship will play a role - and an economic web constructed of thousands of smaller enterprises tends to survive economic fluctuations better than one consisting of fewer, larger ones - but I'm not sure the US middle class is prepared to see their live as such, yet.

            HBO ran a really touching doc last night called The Last Truck, about the closing of a GM plant near Dayton, Ohio. Factories like this, providing long-term, well-paying employment to people of limited education, are clearly in the decline. These displaced workers, by their own admission, have no idea what they'll do next. And with manufacturing being sent abroad for the past thirty-odd years, I've no idea what they'll do either.

            That said, the rest of the world may be a different story. Notwithstanding the notion of disappearing natural resources and our need to conserve, it's going to be difficult to convince the growing middle class in India, China, Russia and Brazil that they simply cannot have the things they can afford to buy because it wouldn't be environmentally responsible. They've seen what's possible and they want it.

            Comment


              #7
              sw2boro's General Muddle of Economics

              To be honest, I think globalisation is more of a challenge to Fordism than resource scarcity, at least in the short to medium term. America has long experienced a massive exodus of "low value added" manufacturing jobs to cheap China, yet China itself is already losing its version of those jobs to places like Vietnam. Absent a serious global agreement on labour and environmental standards, or less desirably protectionist tariffs based the same, the race to the bottom seems inevitable.

              Comment


                #8
                sw2boro's General Muddle of Economics

                I personally think blah-de-blah, about the recent collapse of confidence in people lending money to each other, but it's nothing to do with economics, the scientific discipline I got a degree in twenty years ago.

                That was all about proven links between people's levels of available savings and the amounts they spent on consumer goods.

                None of this crap in those days with "economists" being asked to appear on BBC breakfast news and wildly speculate about how much people might spend in eighteen months' time, and predict interest rates.

                "Economics". The 21st century's Meteorology. And they never get close to getting it right unless there's a fucking hurricane right within earshot, either.

                Comment


                  #9
                  sw2boro's General Muddle of Economics

                  Yeah, I agree [with GY]. I think the trap that I sometimes fall into is in comparing 'the middle class' of countries like these to the middle class as it's been defined in post-WWII America. You know, two cars, big house, yearly vacation and a general high and comfortable standard of living. Perhaps it should be more narrowly defined as having achieved 'the basics, with good prospects for survival'. I mean, once you've got the mod cons, it's just about upsizing it.

                  Of course, once Asia and Southeast Asia are looked after from a 'need it/got it' point of view, there's always Africa - odd as that may seem at the moment.

                  I wonder if these countries will learn from the US experience of holding on to these jobs for too long and not using them as a springboard to higher-value-add jobs. The race to the bottom seems to be well underway in the US as a result, with labour contracts being renegotiated (as we speak) to keep parity with offshore manufacturers in the US with much lower compensation packages.

                  Comment


                    #10
                    sw2boro's General Muddle of Economics

                    Alright gang, as Glenn Hoddle says, cheers for getting back on this. I'd love to get my teeth stuck more into this, I know I won't really get the chance.

                    dglh - you believed that the UK arms manufacturing base isn't too good - I've always got the impression it was fairly beefy - for instance isn't that big London arms fair on this week? And there's more to a war effort than that, I guess.

                    WOM - "compensation package" - is that North American for "wages"?

                    I really need to get the internet at home.

                    Comment


                      #11
                      sw2boro's General Muddle of Economics

                      sw2boro wrote:
                      WOM - "compensation package" - is that North American for "wages"?
                      No, that's the whole shebang added up: wages, plus defined pension and (often entire-family) healthcare benefits.

                      I blather on it about it here.

                      Comment


                        #12
                        sw2boro's General Muddle of Economics

                        Ginger Yellow wrote:
                        With all the usual caveats about my formal economics training being no more than yours, my understanding of the data is that a more serious recession was avoided largely because of a pretty much unprecedented gain in productivity in the US. This was accompanied by real wage declines for much of the 2000s, meaning that corporate profits took a much higher share of GDP than before. And the to-be-expected strain on consumer spending from lower real wages was more than offset by the credit boom and very low real interest rates. Of course, this wasn't sustainable.
                        I don't think this bit about productivity is actually true, is it? I'm fairly sure that in fact productivity growth in the US started to slow after 2000. I'm not sure where I've read that, though it's probably Mandel in BW.

                        Profits taking a larger % of GDP does not necessarily translate to a strain on *aggregate* consumer spending. Wealthier folk take profit as dividends and spend it (at least in part) - it still ends up being recycled in the economy one way or another. GDP and the net savings rate are what you need to keep an eye on, no?

                        Comment


                          #13
                          sw2boro's General Muddle of Economics

                          Productivity Change in the non-farm sector, 1947-2008.

                          Comment


                            #14
                            sw2boro's General Muddle of Economics

                            sw2boro wrote:
                            Which leads me onto the stagnation of Japan over the past fifteen or so years. I’m sure there are all kinds of contributory factors, but I’ve read a few times that Japan’s econmic success after WWII had an awful lot to do with the Korean War and its proximity to this warzone. Demand for munitions, Jeeps being the main item singled out, helped with a vulgar Keynesian bellows effect that had the economy roaring and roasting chestnuts. As this started to wear off, the Vietnam War got it going again. So, did this then wear off as the Nineties got under way?
                            I'm not sure the wars were too much to do with Japan's economic success after WW2. Weren't Japan banned from producing war materials as part of the ceasefire?

                            I think the major factors are: Japan's high level of saving (both by companies and by individuals), which meant that firms always had plenty of funds for investment and R&D, either from their retained earnings or from banks. In addition, a mindset of continuous improvement and an emphasis on minimising errors. Also a corporate culture where staff felt a deep affinity with their firms, were often employed for life & worked very long hours. The Japanese govt also encouraged R&D, esp for exporting industries, through tax breaks etc. All of this resulted in a country producing outstanding products which were readily snapped up by foreign consumers. Good examples are Sony & Toyota.

                            The problems from the 90s on stemmed from the overheated property market which crashed v hard in the early 90s. Since then the high Japanese savings rate has not been so useful, as Japan could do with consumers spending more to increase demand. However as inflation is v low (and has even flirted with deflation I believe) there is little incentive for consumers to spend. Govt fiscal & monetary policy hasn't been too smart either during this time. Other countries have also caught up with Japanese production methods, or have been able to compete on price e.g. China, South Korea. Also the govt has been unwilling to see unprofitable companies either fold or be taken over. Foreign takeovers are still almost unheard of, as are hostile takeovers.

                            It will be interesting to see if the recent change in govt will make any difference. One party had ruled Japan for about 50 yrs (apart from 11 months).

                            Comment


                              #15
                              sw2boro's General Muddle of Economics

                              I didn't mean to imply that the productivity gains were all post-2001. On the contrary, as the chart shows, the whole 1995-2005 period had exceptionally high productivity growth. My point was that this productivity growth helped America emerge from the recession quickly (but also contributed to the so-called jobless recovery as firms could "do more with less" as the saying goes).

                              Profits taking a larger % of GDP does not necessarily translate to a strain on *aggregate* consumer spending. Wealthier folk take profit as dividends and spend it (at least in part) - it still ends up being recycled in the economy one way or another.
                              Well, ceteribus paribus, a dollar of employee salary is usually going to result in more spending than a dollar of corporate profits, because wealthy folk save (or keep offshore) a higher proportion of their income, dividends are often reinvested, many shares are held by 401ks etc.

                              Comment


                                #16
                                sw2boro's General Muddle of Economics

                                Sorry, GY, I misunderstood.

                                Businessweek did a cover article about six months to a year ago where they combed through the productivity stats and reckoned they had been overstated for most of the decade. If I recall correctly, they suggested that a lot of what had been thought of as American productivity growth was actually happening overseas, and that because outsourcing costs were on the books of American companies (for things like call centres or software departments), they were being counted as productivity gains in the US.

                                Or something.

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