Think or Swim

I came across this title as it appeared as an advertising slogan for a financial services product. It seems very a propos these days both as a pun upon the sink or swim adage and as an abject lesson on our recent experiences to do with the Irish property bubble. At the same time, I came across a recent article where Warren Buffet, one of the greatest fundamental investors of our time, tells about his experience during the dot.com bubble. Against his better judgement he was persuaded by his analysts to invest in a host of dot.com companies, but often upon quieter reflection wondered why he was persuaded. He had jettisoned proven selection criteria and decades of experience based upon one facit alone. These company's stock prices, against all previous financial and economic experience, kept increasing. Buffet had fallen for the one of the oldest lies in speculation: "It'll be different this time". Buffet admits his niavety but many in Ireland just won't come to the terms with our bubble. If this proven investor who was used to investing 100's of millions fell for the oldest of lies and succumbed to greed, what chance did the average Seamus/Siobhan have during our bubble? Most people are only trying to make a living and raise a family. They listen to the media for information and have some hope that our politicians are looking out for their welfare. Due to our economic history, many ordinary punters came into windfall profits from home and land speculation. While times were good, and new suckers entered the market every day, they were able to handle the new found wealth. Many now just don't know what to do and are swimming against the tide in order to perserve their windfall captial gains in a very nasty financial environment.

However, the whole bubble eprisode begs a even bigger social and financial question. Given that a new philsophy, born out by recent socio-economic events, has cropped up whereby it is now every man or woman for themselves, what structures have to be put in place in order for the average wage earner to protect themselves against financial dislocation and volatility? Or should all socio-economic structure be completely dismantled and an entitely "free" market ethos allowed to develope whereby the winners take all and the losers are, well, losers. What rules will be implemented in the entirely free market economy? How do we deal with the ever increasing amount of losers?

This is where the thinking part of the title comes into play. It's becoming increasingly obvious that the average wage earner cannot rely on the media for information. How well educated is the Irish media on economic and fiancial matters anyway? I came across a video where an Irish economic professor was telling a story about work he does for RTE. He filmed a piece on the last government budget but was called into the office by the editor and asked if he could drop all those pesky references to budget numbers as they would only confuse the average viewer. I kid you not. What fundamental financial education is taught in primary and secondary schools? Does the average student even know what an inflation figure is, let alone know how it is constructed? How many of us can make a linkage between a piece of legislation and its economic/financial ramifications? That is, if the impending or passed legislation is even brough to the public's attention!

Imho, this information and knowledge deficit is the biggest problem facing our population given the way the socio-economic foundation is changing in Ireland and across the world. In a situation where it is every wage earner for themselves, those who do not have basic economic/financial information are fighting a war in which they are completely unarmed. It's a bit like swimming with the Irish sea with your arm and legs tied, and heaven forfend if a bubble comes along and lifts you for awhile. For when it pops, it may very well suck you under the tow never to be seen again.

Interesting and thought-provoking post indeed. Just to clarify in your second paragraph about protecting ordinary wage-earners, do you mean from adverse effects of bubbles like the housing one? If that's what you mean then it's all the more interesting - some bubbles such as the dot com one are speculative adventures which I think will have less direct effect on Average Joe than the housing one so perhaps certain bubbles like those should be intervened in.

But which ones do we choose to intervene in? For what it's worth I think the housing bubble could have been drawn out and used by Dublin City for a start to build a proper infrastructural environment in Dublin if not Ireland broadly. Skyscrapers could have been taken advantage of early and with decent planning I believe there might have been a better co-ordination of building, buying, banking and business in general. The tall buildings can be used to open up public space areas which are vital for a thriving city. Tall buildings affect commuting, public transport and cost of living too and should have been considered long ago as a feature of Dublin city centre - around the docklands for instance. I saw in the Irish Times yesterday another 35-storey hotel in the Docklands near Sheriff Street was rejected by An Bord Pleanála/An Taisce or whoever - there seems to be a concerted effort to keep Dublin low rise. I've no doubt someone is benefitting from this.

I also believe that implementing greener building standards would have taken the heat out of the market and drawn it out over a longer period of time - it goes without saying though, how long can a housing bubble go on - it is a market that is easily seen as having a saturation and exhaustion point ...?? I think the law of diminishing returns applies under the surface although the law of common sense might suffice.

I'm not surprised Warren Buffet was fooled by the dot com bubble as in a way he was right - it is different but it's just such a complicated market. Look at mobile phones now - everyone has at least one and that may get changed regularly. Such penetration is the be-all and end-all of a rising bubble and began to happen quickly enough so as to set a possible example for other markets. I t will reach a saturation point but then you look at how mobile phone features are advancing. However, it's impossible to tell which dotcom companies will survive and thrive and it's still questionable as to whether the likes of google is really worth what it's worth before we go on to facebook, youtube, ebay, bebo etc. etc. etc. Surely it takes a serious bit of wizzardry expertise in finance/tech/society to judge where the likes of these stocks will go and what sort of penetration they'll have.

All these markets stand in contrast to the housing one, however. There are only so many houses that can be bought for the 860k I know someone paid about two years ago for their house which is now neighboured by houses worth 575k according to the Property Pin the other day. This is like losing half the lotto to me. I reckon if the value of those houses remains in line with inflation from now on then that person could have saved themselves over half a million in the long term by staying with mammy for another year and a half. However, they'll say that as long as they can pay for it then it's worth a lot more than money to her and her husband. Aw shucks and diamonds are a girl's best friend.

When I saw the house first I thought "that house cost about 150k to build - if that - and similar properties I've seen down the country and in other countries cost little over 200k therefore this is a mistake" At 860k+ you end up paying some bank 1.7 million euro over your lifetime, don't you and for what? a three-bedroom home in an estate on the outskirts of Dublin And these are smart people (they think so anyway) and are well-travelled so how did they get caught up in this web of deceit and panic?

If enough people like this see enough drops like this in the value of their properties and it remains that way, we might end up seeing more tribunals into planning matters in the future.

Where do you start with this one?

People are usually motivated by greed (self interest) and fear. Warren Buffet is no different to the rest of us. Once you suspend judgement for hope you have had it, you are gambling. Even with judgement we all make the wrong call all too frequently so a fair measure of guile and inside information helps.

People who enter any market thinking it is a fair and level playing field are fools. You are always at a disadvantage to people who have inside information. Anyone can make a paper profit on a rising market, the difficult part is retaining and increasing it in the fall.

The left make many interesting points regarding wealth and basically usury. Should wealth simply create more wealth? Speculation is often gambling, but when you make a killing say on a land deal someone pays. I don't think making money on speculation alone is right (and I am guilty of it) Development is something else, you take something and make something different from it. A distinction needs to be made.

IMO there are parts of the economy that you simply cannot trust the private enterprise to run as long term viability is not guaranteed. Healthcare, basic pensions and education. How the public sector runs them efficiently is another matter. I also believe that basic services like road and rail building are better left to local or central government along with water provision and sewerage treatment. Again there are valid arguments as to how they are run to ensure efficiency. In addition there is policing, security and foreign office.

Cooperatives, Building Societies and Credit Unions should be encourages. They spread the ownership of resources and the broader that base the better. There needs to be more local opportunities for people to invest. Businesses and enterprises in their locality, things they can see and which they know.

There are also very compelling arguments about small government, localising decision making and keeping government to the utter minimum, but reconciling that with the need to ensure essential services is a challenge.

With regards the market, businesses that fail should be allowed to fail. The government may intervene but if it is taking ownership it should reflect the reduced value and interests of the tax payers paramount. However the problem here is just how much do we trust the politicians? Are they acting in our interests or their own, or are they acting for others?

So a cleaner financial system needs first a radical improvement in political standards. Following from that you then need to enforce very stringent standards on the financial sector. How you would ever make the markets fairer and more transparent other than high ethical standards is beyond me, for no matter what system you set up it is only as good as the first crook. Certainly I would like to see a lot more white collar convictions for fraud and false accounting.

Anti trust legislation could also be beneficial and may help break up some of the press and media empires. This is another sector where standards are often lacking.

There is a major educational gap, we learn dead languages and all sorts of interesting things about times past and the earth around us but give scant regard to the governance of the country and how economy work.

rockyracoon wrote:

However, the whole bubble eprisode begs a even bigger social and financial question. Given that a new philsophy, born out by recent socio-economic events, has cropped up whereby it is now every man or woman for themselves, what structures have to be put in place in order for the average wage earner to protect themselves against financial dislocation and volatility? Or should all socio-economic structure be completely dismantled and an entitely "free" market ethos allowed to develope whereby the winners take all and the losers are, well, losers. What rules will be implemented in the entirely free market economy? How do we deal with the ever increasing amount of losers?

This is where the thinking part of the title comes into play. It's becoming increasingly obvious that the average wage earner cannot rely on the media for information. How well educated is the Irish media on economic and fiancial matters anyway? I came across a video where an Irish economic professor was telling a story about work he does for RTE. He filmed a piece on the last government budget but was called into the office by the editor and asked if he could drop all those pesky references to budget numbers as they would only confuse the average viewer. I kid you not. What fundamental financial education is taught in primary and secondary schools? Does the average student even know what an inflation figure is, let alone know how it is constructed? How many of us can make a linkage between a piece of legislation and its economic/financial ramifications? That is, if the impending or passed legislation is even brough to the public's attention!

Imho, this information and knowledge deficit is the biggest problem facing our population given the way the socio-economic foundation is changing in Ireland and across the world. In a situation where it is every wage earner for themselves, those who do not have basic economic/financial information are fighting a war in which they are completely unarmed. It's a bit like swimming with the Irish sea with your arm and legs tied, and heaven forfend if a bubble comes along and lifts you for awhile. For when it pops, it may very well suck you under the tow never to be seen again.

Interesting. I would look at this as something of a 'coming of age' for Ireland, albeit not entirely a good one. The UK, where it has been a case of "sink or swim" for much longer, has far better information dissemination channels, and certainly used to have a much better public understanding of what effect the government's actions would have on their personal or family finances.

Ireland, on the other hand, was a rural economy, characterised by a 'peasant' perspective - "tell nobody anything" and "leave government to the government". The only people who were "in the know" were the D4 "elite".

The speed with which Ireland has changed (a decade, really) means that we've reached a situation where a large chunk of the population is now "urbanised" (in the sense of atomised, detached from community, and financially vulnerable without being poor), without there being the corresponding levels of public information or knowledge.

rockyracoon wrote:

I came across this title as it appeared as an advertising slogan for a financial services product. It seems very a propos these days both as a pun upon the sink or swim adage and as an abject lesson on our recent experiences to do with the Irish property bubble. At the same time, I came across a recent article where Warren Buffet, one of the greatest fundamental investors of our time, tells about his experience during the dot.com bubble. Against his better judgement he was persuaded by his analysts to invest in a host of dot.com companies, but often upon quieter reflection wondered why he was persuaded. He had jettisoned proven selection criteria and decades of experience based upon one facit alone. These company's stock prices, against all previous financial and economic experience, kept increasing. Buffet had fallen for the one of the oldest lies in speculation: "It'll be different this time". Buffet admits his niavety but many in Ireland just won't come to the terms with our bubble. If this proven investor who was used to investing 100's of millions fell for the oldest of lies and succumbed to greed, what chance did the average Seamus/Siobhan have during our bubble? Most people are only trying to make a living and raise a family. They listen to the media for information and have some hope that our politicians are looking out for their welfare. Due to our economic history, many ordinary punters came into windfall profits from home and land speculation. While times were good, and new suckers entered the market every day, they were able to handle the new found wealth. Many now just don't know what to do and are swimming against the tide in order to perserve their windfall captial gains in a very nasty financial environment.

However, the whole bubble eprisode begs a even bigger social and financial question. Given that a new philsophy, born out by recent socio-economic events, has cropped up whereby it is now every man or woman for themselves, what structures have to be put in place in order for the average wage earner to protect themselves against financial dislocation and volatility? Or should all socio-economic structure be completely dismantled and an entitely "free" market ethos allowed to develope whereby the winners take all and the losers are, well, losers. What rules will be implemented in the entirely free market economy? How do we deal with the ever increasing amount of losers?

This is where the thinking part of the title comes into play. It's becoming increasingly obvious that the average wage earner cannot rely on the media for information. How well educated is the Irish media on economic and fiancial matters anyway? I came across a video where an Irish economic professor was telling a story about work he does for RTE. He filmed a piece on the last government budget but was called into the office by the editor and asked if he could drop all those pesky references to budget numbers as they would only confuse the average viewer. I kid you not. What fundamental financial education is taught in primary and secondary schools? Does the average student even know what an inflation figure is, let alone know how it is constructed? How many of us can make a linkage between a piece of legislation and its economic/financial ramifications? That is, if the impending or passed legislation is even brough to the public's attention!

Imho, this information and knowledge deficit is the biggest problem facing our population given the way the socio-economic foundation is changing in Ireland and across the world. In a situation where it is every wage earner for themselves, those who do not have basic economic/financial information are fighting a war in which they are completely unarmed. It's a bit like swimming with the Irish sea with your arm and legs tied, and heaven forfend if a bubble comes along and lifts you for awhile. For when it pops, it may very well suck you under the tow never to be seen again.

I remember Galbraith writing somewhere about the Crash and the Great Depression that people thought they were geniuses because they were making money in a rising market. It seems to be a bit like tsunamis and childbirth, people's memories of the pains disappear and they lose all necessary fear. I think people know what inflation is because it hits them in their pockets, and they know about interest rates. What they don't know is the macro stuff. People didn't know enough to know how vulnerable we were in relying so heavily on FDI and construction. They didn't know all that Ireland is the richest country stuff was hog wash. They didn't know that joining the euro would mean pain as well as gain and they didn't know that combining very low interest rates, and low taxation, with tax incentives for construction was sure to start a chain reaction.

Basically, we pay and elect other people to know this stuff and i agree with you that that is dangerous.

The individual is not able to protect him or herself from a financial tsunami and I think Stiglitz is convincing in showing that "freemarketising" a weak economy is a recipe for tears and bloodshed. At the end of the day, it will be more intervention, not less, if we are every going to get this right. I would focus on energy independence based on renewables, because it is a win win in so many ways. It will benefit the balance of trade, create employment, end risky dependence on gas and oil, and could developed as a sector in which we export expertise and equipment. We need to be taxing gas and oil from Irish waters at a reasonable level. Education, and increased food production for local consumption are also important. Whether we like it or not, high oil costs are going to mean expensive shipping and reduced global trade. A good few US firms have already moved back to the ranch from the EU.

I would go for a higher level of participative democracy with citizen involvement in the economic debates and with responsible local government raising and spending their own budgets. When people participate they will learn the stuff you rightly say they need to know.

So many thoughful replies and me too ignorant to comment or reply in a timely fashion . In my feeble defense I'm doing some serious number crunching and I'm not even half way through the exercise. But anyhow, a clarification for starters. I suppose I'm trying to get at how the average person is informed, or uniformed or worse misinformed, about the serious business of finance and economics. As some have pointed out, we live in somewhat more comlex times where causes and results are not always clear and easily analysed. I would postulate that there is some seriously pernicious disinformation being touted throughout the media (and by extension governments) about finance and the economy; whether is be through "dumbing down" or the downright desire to mislead the plebs. Let me give a very broad example or discription.

In much simpler times, Ireland had a cohort of small farmers. These were self-employed business men and women and their knowledge of prices and markets was unsurmounted. It was often said that my grandfather could value of a field down to its last blade of grass. In any farm house or pub across the land, you could get a farmer to quote any number of commodities and a tenative price forecast based on defined parameters. I.e. the auld one could tell you to a shilling what you should get for yon bullock given its size and depending which market you wanted to sell it at and at what time of the year. Price anomolies were discussed into the ground. Every angle inspected and a consensus arrived upon. Usually some bastard was trying to pull a stroke and they could name the individual!

A few years back, I came across a factory buyer who wanted me to sell livestock at a pre-determined price for a specified future delivery date. (Quite a few other stipulations but you get the idea). This is basically a forward/futures contract and a bit more complex than the old systems people were used to. Yet many older and smaller farmers saw through to the long term implications. If they all sold, even on very favourable short term prices, they would essentially create a buyer's cartel comprised of a few companies. Too few buyers is not healthy for any free market. However, given that so many modern farmers only farm on a part time basis and essentially contract many functions, the factory foward pricing system becomes a convenient basis on which to do business and lock in profits. This also begs questions about Supermarket inputs, transportation distances and world trade agreements, and ultimately how the consumer is impacted by standardisation and apparently cheap produce. We have essentially created a buyers market but haven't costed the prices of pollution, social cohesion, food variety and nutrition created through the implementation of a buyer focused system. But I digress somewhat.

As Ibis pointed out the average Sean and Siobhán may have learnt a few lessons from our recent bubble, but I'm not so sure. I also believe that the current system in Western economies will lead to ever more bubbles and economic dislocation. There's a new sucker born every second as the saying goes. This is not say that I'm not a sucker myself. If Buffet can fall for the dot.com bubble (this had more to do with the yahoo's, online shopping and every offshot than, say, the mobile telephone maket for example) than what chance do we with far less basic information have? Also factor in the "new" methodologies for determining inflation data, GDP and money supply and the waters become ever more murkier.

Should we demand that governments address these issues through educational programs? Should political parties address these issues with concrete policy statements which they implement? I'm trying to get the party I support (SF) to address the topic. Are these issues even worthy of comment? Maybe I've overblown the topic out of proportion?

However, I get the feeling that there is a growing disconnect between how business is conducted and how the average person knows how to deal with modern economy. All too often debt seems to be a solution to every financial problem without wondering why debt is so prevelant today and how it is priced. There is a disconnect between how cheap prices are arrived at and how they affect everyone in the long term. Fifty years ago the amount of self employed people, from shop keepers to farmers, had to know the financial and economic basics and they constituted a far bigger number of people than in today's modern Ireland; and they analysed the shite out of everything. I don't think that the modern consumer and maybe asset shareholder is as keenly aware of financial and economic factors and it often uniformed or disinformed of so much.

rockyracoon

I think the disconnect is worse than you outline.

In the last couple of weeks I have had the pleasure of meetings with Bankers Bank managers etc.. Some observations;

I am utterly convinced that the average Bank Manager has not the slightest idea how the money markets work. So you have to ask what percentage of the population have even a basic understanding, and off that how many are 'expert'?

We have a commission based financial system operated by many who haven't a clue beyond what is on their desk. How do you manage and control such a system within your own banking business? How can you effectively operate when your interface with the public lacks knowledge and could this be construed as both unethical and professionally incompetent?

Those higher up in the Banks and financial institutions are certainly better informed are more raptor like, but behind the platitudes and cordiality I sensed deep unease (and opportunity) at this moment in time.

In the school I went to I do not recall any lessons on how the worlds financial systems worked and I doubt if the teachers were well up on such matters. Yet this was a school where former pupils and their acquaintances disproportionally ended up in Banking, Foreign Office, Government etc. The school was outstanding in promoting interest in politics, current affairs and certainly you were more than just encouraged to take an interest in the world, but no formal lessons on how the financial structures worked, none whatsoever. (Unless i slept through that class)

A significant portion of both rockyracoon and Squire's eloquent posting regards the dis-informed masses of Irish people with regards to financial services, economic trends, pricing and the way the economy works.

I'm not so sure that that is the case, at least for those who studied Economics at school and/or then went on to a finance degree in college. You learn so much about how the economy works through this learning. You learn about how a composite price index is constructed(thereby teaching you about inflation rocky), government economic objectives, comparative advantages, unemployment, economic thought and so much more.

This education can and sometimes does be reinforced by doing a finance degree in college where the intricacies of banking, trade, money and so on are imparted to the student. As a result of this education, thousands of Irish people are informed in all these matters and have a footing with which they can judge the economic trends which occur in everyday life.

You may think that those farmers who knew the price of everything agricultural are gone, but they have metamorphisised into those who can quote the cheapest price of diesel, the value of the car your driving, the average house price on the street and what constitutes a bargain on the rental market. Price-savvy people still exist out there, it just might not be so obvious in an economy far more dependent on abstract services than on the concrete agriculture of yore.

I firmly believe that the economy is the substructure that drives and defines political and social life, and that if we don't understand it we can't understand history or where we are going. Knowledge is power, so its dawning on me that I have to try and understand this stuff as a matter of survival, and I suppose the same goes for society as a whole.

Isn't it in the interests of the big beneficiaries to make sure that as few people as possible understand macro economics and the markets ? Even people supposedly inside the loop couldn't make head or tail of the various "financial products" and bundles they were buying in the last few years. In the Lloyds scandal it eventually emerged that all the high risks had been flogged off to the new Names outside the traditional inner circle. Products were recently sold to the Credit Unions in Ireland that appear to have been entirely unfit for their needs and this appears to me to have been conceded by the brokers who sold them (I believe this matter has been settled).

Transparency would be contrary to the interests of the big winners in the financial system. The fast buck also seems to be the requirement. Funding something like the British railway system that took many decades to be solvent is pretty well unthinkable today. If people understood the markets and how they function would they find it acceptable?

We can try and understand it from the point of view of trying to make a living out of it, or from the point of view of trying to change it. Either way imo no one is going to help us, we have to help ourselves and each other. For that reasons I really appreciate the very informative posts and videos that people have put onto this site.

cactus flower wrote:

I firmly believe that the economy is the substructure that drives and defines political and social life, and that if we don't understand it we can't understand history or where we are going. Knowledge is power, so its dawning on me that I have to try and understand this stuff as a matter of survival, and I suppose the same goes for society as a whole. . .

We can try and understand it from the point of view of trying to make a living out of it, or from the point of view of trying to change it. Either way imo no one is going to help us, we have to help ourselves and each other. For that reasons I really appreciate the very informative posts and videos that people have put onto this site.

Yeap, I tend to agree with you regarding the importance of the macro-economic and financial considerations and the impact they have on our daily lives. So much policy, nationally and internationally, is decided without the great majority of people being aware of the decisions made on their behalf or how they will be affected. Meself, I have a finance degree (jack of all trades, the master of none) but it gives me a foundation upon which to try and understand with some clarity the vast array of information available and to fill in the gaps when all the information isn't presented. Nothing gets my blood pressure rising as when the media, or whoever, only gives half the story. Its seems that a barrister-like approach is occuring with the presentation of financial/economic statistics and information. One side gives half the rosy story, for example, and you're left scrambling to find the other half. Rarely have I come across a balanced assesment regarding an economic presentation. I imagine many people just take half the story as the whole, and many never bother to check the veracity of the half story!

I suppose mass education is the only way forward. It seems rather strange that with ever more data available, it appears harder to get a comprehensive view of economic conditions. Another modern paradox. It's a bit like computers and robotics. Workplaces were supposed to become nearly paper free but more paper than ever is spewn out in reports, etc. People were supposed to enjoy greater leisure time and working conditions but most people work longer hours than ever before. Somewhere underneath all these considerations are profound philisophical and sociological implications. The man or woman who figures out these ramification should probably keep their mouth shut or they'll be nailed to a tree.

rockyracoon wrote:

I suppose mass education is the only way forward. It seems rather strange that with ever more data available, it appears harder to get a comprehensive view of economic conditions. Another modern paradox.

I've often thought about this while buying a DVD - sometimes the item is radically cheaper at odd times like the end of September or in Spring or something weird. Is there a national marketing trend or spending pattern which dictates why the shop is doing this? It's weird. And different shops will have different bargains so I used to go to HMV in October and blah blah blah in May and now I'm going to buy them online. Do some distributors drive the markets themselves?

I don't understand clothes and fashion because I model myself on the virtuoso singer Damien Rice and that means I only have to get to the nearest Oxfam. But someone somewhere collects all this data - Credit Card companies? Facebook?

I agree it's a bit of a mystery about economic data when we have a lot of machines churning out our cotton, cake and coke and you'd imagine we'd have figures reflecting the amounts of cake and coke consumed. I'd love to have a figure like Damien Rice but maybe I should eat more rice.

And you'd imagine we'd have figures for the amount of heart disease expected given the knowledge about the diet. But maybe it's not all as simple as we'd like to think and there is a massive element of chaos in among it all.

I'd still like to think it's assessible, measureable and quantifiable though.

I came across an interesting concept in relation to economic thought. All too often when we bother to look at economic statistics we focus in the big ones like inflation and GDP growth/decline. Forgetting about how they are calculated and their impact on individuals or cohorts within a given society, it might do well to consider if actual growth in an economy (GDP) equates to actual wealth distribution within the economy. There is a notion that wealth distribution in society only occurs when an actual surplus of wealth is created. GDP growth doesn't equal wealth creation in the broad economy; only surplus does.

An example given is from the US post WWII until the 1980's. After the war the US government and industry began to realise that the induced savings from the war period had amassed into a critical level of potential investment capital for the economy. Prior economic thought had stipulated that with the return of millions of potentially unemployable soldiers and the wind down of war industry that the economy would enter a recession. However, at that time the US was resource rich and most importantly had its own supply of oil. Also the technological innovations from the war in term of increased productivity and mass production of non-traditional items (home building for example) opened up the opportunity to use the amassed capital to invest in new consumer goods and national infrastructure. Add on top of this President Truman's desire to create a nationwide motorway scheme and the scene was set for explosive economic growth. Indeed, there was so much wealth after the post war period that the standard of living for many Americans (leaving aside racial and gender discrimination for the moment) had improved in real and tangible terms. The US was producing not only for home consumption but was exporting its products and expertise. Its imports were more politically driven than from economic requirements one might say. Hence, the US govt felt comfortalbe in following policies like Marshall aide for Europe and economic support for Japan in the post war period.

Then the 70's came along. First the US became a net importer of oil and then the oil embargo occurred. For the first time, the economic surplus of the US came under pressure. Add to this the import surge from Japan due to their better manufacture of small cars and other goods and the US actually became a net importer of goods. The surplus turned into a deficit. Since then the US political establishment has indulged in inflationary measures through debt issuance and wealth tax cuts in order to stimulate GDP growth. However, while these expensive measure maintained the appearence of sustained growth, especially for the all important middle classes, they have actually resulted in a deterioration of the living standards of millions of Americans and for the first time are threatening the middles classes in big numbers. The latest housing bubble may have bouyed a several of millions but the bubble has also sent several of millions into wage earner poverty. Since the 80's the US has also seen the appearance of the a new social cohort called the working poor. These are individuals who are highly productive but usually stuck in minimum or near minimum wage jobs who have to finance daily life sustaining activities through weekly debt take up and weekly payments driving them ever deeper in the a debt spiral. This activity has, by the way, reached UK shores within the last couple of years.

Just some economic theory for thought.

I wrote a long reply here and somehow it got lost.
I'm going to blame Google Chrome.

rockyracoon wrote:

The latest housing bubble may have bouyed a several of millions but the bubble has also sent several of millions into wage earner poverty. Since the 80's the US has also seen the appearance of the a new social cohort called the working poor. These are individuals who are highly productive but usually stuck in minimum or near minimum wage jobs who have to finance daily life sustaining activities through weekly debt take up and weekly payments driving them ever deeper in the a debt spiral. This activity has, by the way, reached UK shores within the last couple of years.

Unless you are adaptable, talented and the economy is sufficiently buoyant and diverse then you may be stuck as working poor for your life I suppose. This is the dread of the 30-year mortgage after all and it may be coming true for some.

Are the days of the "job for life" going or gone? Thankfully our economy has become more varied and flexible over the last few years with a good variety of types of work not to mention availability, so if you are the type who wants a change of whatever kind then you had the option more or less. This is a good thing in my book and could be helped further by allowing people to go back to education for free after a number of years working, or reducing fees on or subsidising the mature student who wants to reskill. There should be little problem in funding someone who got their education for free, worked and paid tax for 10 years then wanted to return to education. Both for good times or bad I believe such a culture of having the option of swapping employment for education might make our society more flexible still.

eoinmn wrote:

I wrote a long reply here and somehow it got lost.
I'm going to blame Google Chrome.

eoinmn, would you give it another shot? I'd like to hear what you were going to say.

rockyracoon wrote:

I came across an interesting concept in relation to economic thought. All too often when we bother to look at economic statistics we focus in the big ones like inflation and GDP growth/decline. Forgetting about how they are calculated and their impact on individuals or cohorts within a given society, it might do well to consider if actual growth in an economy (GDP) equates to actual wealth distribution within the economy. There is a notion that wealth distribution in society only occurs when an actual surplus of wealth is created. GDP growth doesn't equal wealth creation in the broad economy; only surplus does.

An example given is from the US post WWII until the 1980's. After the war the US government and industry began to realise that the induced savings from the war period had amassed into a critical level of potential investment capital for the economy. Prior economic thought had stipulated that with the return of millions of potentially unemployable soldiers and the wind down of war industry that the economy would enter a recession. However, at that time the US was resource rich and most importantly had its own supply of oil. Also the technological innovations from the war in term of increased productivity and mass production of non-traditional items (home building for example) opened up the opportunity to use the amassed capital to invest in new consumer goods and national infrastructure. Add on top of this President Truman's desire to create a nationwide motorway scheme and the scene was set for explosive economic growth. Indeed, there was so much wealth after the post war period that the standard of living for many Americans (leaving aside racial and gender discrimination for the moment) had improved in real and tangible terms. The US was producing not only for home consumption but was exporting its products and expertise. Its imports were more politically driven than from economic requirements one might say. Hence, the US govt felt comfortalbe in following policies like Marshall aide for Europe and economic support for Japan in the post war period.

Then the 70's came along. First the US became a net importer of oil and then the oil embargo occurred. For the first time, the economic surplus of the US came under pressure. Add to this the import surge from Japan due to their better manufacture of small cars and other goods and the US actually became a net importer of goods. The surplus turned into a deficit. Since then the US political establishment has indulged in inflationary measures through debt issuance and wealth tax cuts in order to stimulate GDP growth. However, while these expensive measure maintained the appearence of sustained growth, especially for the all important middle classes, they have actually resulted in a deterioration of the living standards of millions of Americans and for the first time are threatening the middles classes in big numbers. The latest housing bubble may have bouyed a several of millions but the bubble has also sent several of millions into wage earner poverty. Since the 80's the US has also seen the appearance of the a new social cohort called the working poor. These are individuals who are highly productive but usually stuck in minimum or near minimum wage jobs who have to finance daily life sustaining activities through weekly debt take up and weekly payments driving them ever deeper in the a debt spiral. This activity has, by the way, reached UK shores within the last couple of years.

Just some economic theory for thought.

Wow this is a good post. It brings together ideas in threads here about the deficiencies of the IMF World Bank outlook about what is a sound economy and what has been explored in the "dollar is dead" thread. https://machinenation.forumakers.com/economy-business-and-finance-f8/the-dollar-is-dead-long-live-the-t63-75.htm

Thanks for your very good summary of the US economy at home.

Rockyracoon, would the general heading of "decline in the rate of profit" - compensated for by inflationary dollar printing - cover what you are talking about? Living standards in the US have not gone up for the last thirty years, if you allow for women coming into the work force and the number of people working two jobs. Now people cant get health care and are losing their homes.

The other side of it was that after WWI and again WW II the US became the dominant world military force, with its navy and nuclear capability reaching potentially to all parts of the world. On the other hand, what ever you think of it, the Soviet Union was an alternative political and economic model. In order to prove it wrong, the US and western European governments had to provide a better living standard to their middle and working classes. The Marshall plan was a direct measure to stop France with its mass Communist Party going red.

In the "homelands" of the west, the US created an inflationary boom, protracted over decades of ups and downs (to the point we are at today), and abroad, in the name of democracy and saving the world from the red peril, the US installed and supported military dictatorships that screwed people down into misery whilst their natural resources were hauled out. Europe was a good buffer against the reds, but was not going to keep its hands on colonial assets if the US had anything to do with it.

The US is enormously indebted now, and pushing on with the military project in the Balkans and Caucasus and through Israel as a proxy against Iran, in Afghanistan. Both Iran and Afghanistan had governments that were more or less democratic and secular before the US got at them. The main US export is misery and mess.

If Bush is planning to bring the army home from Iraq, my guess is that he may want to be ready to use it at home.

Paul Craig Roberts, Reagan's man, is a good read:
http://www.globalresearch.ca/index.php?context=va&aid=8021

http://news.bbc.co.uk/2/hi/business/7584472.stm

cactus flower wrote:

The other side of it was that after WWI and again WW II the US became the dominant world military force, with its navy and nuclear capability reaching potentially to all parts of the world. On the other hand, what ever you think of it, the Soviet Union was an alternative political and economic model. In order to prove it wrong, the US and western European governments had to provide a better living standard to their middle and working classes. The Marshall plan was a direct measure to stop France with its mass Communist Party going red.

Which proves what a good idea competition is after all since it keeps all service providers on their toes. With the US and the USSR competing in the marketplace of ideas, a better standard of idea was offered by the West.

Ard-Taoiseach wrote:

cactus flower wrote:

The other side of it was that after WWI and again WW II the US became the dominant world military force, with its navy and nuclear capability reaching potentially to all parts of the world. On the other hand, what ever you think of it, the Soviet Union was an alternative political and economic model. In order to prove it wrong, the US and western European governments had to provide a better living standard to their middle and working classes. The Marshall plan was a direct measure to stop France with its mass Communist Party going red.

Which proves what a good idea competition is after all since it keeps all service providers on their toes. With the US and the USSR competing in the marketplace of ideas, a better standard of idea was offered by the West.

There was a strong degree of market distortion in the choice - the US sponsporship of the Greek Colonels dictatorship would be an example.

cactus flower wrote:

Ard-Taoiseach wrote:

cactus flower wrote:

The other side of it was that after WWI and again WW II the US became the dominant world military force, with its navy and nuclear capability reaching potentially to all parts of the world. On the other hand, what ever you think of it, the Soviet Union was an alternative political and economic model. In order to prove it wrong, the US and western European governments had to provide a better living standard to their middle and working classes. The Marshall plan was a direct measure to stop France with its mass Communist Party going red.

Which proves what a good idea competition is after all since it keeps all service providers on their toes. With the US and the USSR competing in the marketplace of ideas, a better standard of idea was offered by the West.

There was a strong degree of market distortion in the choice - the US sponsporship of the Greek Colonels dictatorship would be an example.

Which also proves how bad distortions to markets can be. An undistorted market is simply wonderful. It gets things done like no other.

If there was an undistorted market in ideas, and people chose to go with a distorted market, would you be cool with that?

cactus flower wrote:

If there was an undistorted market in ideas, and people chose to go with a distorted market, would you be cool with that?

I believe in personal choice and the right of the consumer to choose but I can't see how we could arrange for a ballot to correctly ascertain people's wishes in this regard.

Well, say a party is elected that puts forward a strongly progressive taxation regime, or that nationalises natural resources ?

cactus flower wrote:

Well, say a party is elected that puts forward a strongly progressive taxation regime, or that nationalises natural resources ?

That would be fine then, they voted for that economic settlement so they can live with it. If the party leads the country into recession, emigration and capital flight, then we will know who is to blame. However, if the party leads the country to boom, social progress and large inward migration, then we know who to thank, the people. The beauty of undistorted markets is that accountability is made so much clearer.

Ard-Taoiseach wrote:

cactus flower wrote:

Well, say a party is elected that puts forward a strongly progressive taxation regime, or that nationalises natural resources ?

That would be fine then, they voted for that economic settlement so they can live with it. If the party leads the country into recession, emigration and capital flight, then we will know who is to blame. However, if the party leads the country to boom, social progress and large inward migration, then we know who to thank, the people. The beauty of undistorted markets is that accountability is made so much clearer.

Is there any State that fulfills your standards for a free market economy?

cactus flower wrote:

Ard-Taoiseach wrote:

cactus flower wrote:

Well, say a party is elected that puts forward a strongly progressive taxation regime, or that nationalises natural resources ?

That would be fine then, they voted for that economic settlement so they can live with it. If the party leads the country into recession, emigration and capital flight, then we will know who is to blame. However, if the party leads the country to boom, social progress and large inward migration, then we know who to thank, the people. The beauty of undistorted markets is that accountability is made so much clearer.

Is there any State that fulfills your standards for a free market economy?

Ireland is somewhere close to it and I would like to keep it there. Singapore, Hong Kong, Luxembourg and Switzerland would be other countries of a complexion I would approve. We're in a club of very liberal economies and, if we preserve that into the future, we can remain a success. We just have to ensure that all our achievements aren't flooded by a deluge of misguided governmental intervention, excessively lax and politically-motivated monetary policy and a resurgence of socialism/communism.