But surely it’s too radical

I was struck by two thoughts as I looked through my previous posts:

  1. It’s all a bit complicated – I do not seem to be able to express the technical stuff very easily.
  2. It’s all a bit too radical – no-one is going to go for the idea (see the about page)

I am sorry about the first, but I will work on my posts and see if I can come up with better ways of expressing the ideas

As to the second, I am reading Mark Stevenson’s An pptimists tour of the future“An optimists Tour of the future” and was struck by the big thing in chapter 12 “A little bit of a bloody big amount,” which is that a radical change to farming methods can make a huge difference to the future of farming (in arid countries like Australia), as well as make a big difference to the amount of CO2 in the atmosphere.

The farming idea is both radical and simple.  Instead of current farming methods, try to make cattle behave much more like a roaming herd.  And apparently it works as this talk at the TEDx Dubbo conference (in August 2011) explains.  Here is one slide from his talk:

Tony Lovell comparison

So radical can work.  But it is not easy to implement – sometimes you have to let go of the things you think you know (which is why farmers can see the improvement to neighbours land but do not make the same changes themselves).

 

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Growth without debt

Aside

In my post Steve Keen in Solvent Land (2), I mentioned that I thought Steve Keen’s analysis may be incomplete in that it ignores

increasing our capital goods (such as housing)

Let me be clear that I am not criticising his analysis, since he has created a model aimed at understanding the importance of debt in our economy whereas I am looking at eliminating debt.

And because I am looking at an economy with no debt, I need to look at whether this means an economy with no growth. Continue reading

Steve Keen visits Solvent Land (2)

OK,  I cheated.  I did the easy bit in my post last week.  There is an issue around the ability for governments to run deficits, and this comes in two flavours –

  1. running a deficit to boost an ailing economy (something which is less likely to happen if we make finance simpler by stopping commercial debt) and
  2. running a permanent deficit because it is always good to boost the economy (which is true according to Steve Keen).

I deliberately ducked the much harder questions around what money is and whether we need banks and governments running deficits simply to exist. Continue reading

How to grow debt

Jubillee logo A recent campaign by the Jubilee Debt Campaign highlighted a few issues including:

  • The people with the money seem to think that the best way to help a country which is up to its neck in debt is – to lend it some money.  For example back last summer there was a report on Ghana which had debt cancelled in 2004 and 2005 but looks as though its debt repayments will rise to the same amounts or more by the mid 2020s.
  • The government seems to think that lending money is giving aid.  Apparently as long as the interest rate charged is less than 7%, government loans can be classed as aid.
  • Most lending to low-income countries comes from international lenders including the World Bank and the IMF

I know I am a simple soul, but this does not sound like the best way to help countries out of debt.

Steve Keen visits Solvent Land

Following on from Hyman Minsky’s visit to solvent land, I would like Steve KeenDebunking Economics book cover to visit as well.

He is known for Debunking Economics and predicting that there would be a financial crisis when so many of the world’s economists were basking in a prolonged period of growth and (as Gordon Brown put it) the “end of boom and bust.”

But what would he see in solvent land?

In his most recent posts about world economies, Steve Keen seems to have been concentrating on two things:

  1. The correct response to a downturn is for a government to run a deficit to provide a boost to the economy.  This is in stark contrast to the way in which the EU has required Greece to respond to its Euro crisis by severe austerity measures.  See his blog post on 23 June 2014.
  2. Governments should always run deficits (and not surpluses) or they will stifle economic growth (a lecture in Vienna which last a little over an hour)

These two requirements seem to say that solvent land which has no commercial debt, will not work.  A government cannot run a deficit in solvent land because it, like everyone else, cannot borrow money commercially and therefore is not able to run a deficit.

But let’s stop to think for a moment:

  1. “The correct response to a downturn is to run a deficit.”  This means you only need deficits if you have hit a downturn.  But a main reason for removing commercial debt is to avoid the cycle of debt expansion which leads to a downturn in the economy.  Minsky put forward his “theory of financial instability” which says something like (my synopsis of part of the process) –

    during the good years everyone gets used to growth and profits and expects it to go on.  So the financial institutions come up with more ways of lending money to fuel the growth we are all experiencing.

     

    Then something (possibly minor) goes wrong and we realise that assets are overpriced (because it was too easy to borrow to buy them) and we realise we are in debt and we are in a financial crisis because even if we sold the assets we bought when they were overpriced we would still be in debt.

    So if we do not have debt, we do not have something built-into the economy which will lead to boom and bust.  And if we do not have a downturn, we do not need governments to run deficits to be able to get us through them.

  2.  And so we come to the second problem, that “governments should always run deficits”, or stifle growth.  Whilst Steve Keen’s graphs are convincing, is this a price worth paying for an economic system which:
    • does not automatically lead us into recession;
    • safeguards the poorest in society from the most expensive lending;
    • avoids governments borrowing so much that they lose the ability to pay for basic services such as education and health

    Even when we have said all that, Steve Keen’s own analysis back in May 2014 (in a talk which lasts around 15 minutes) suggests that governments should avoid running permanent surpluses as this is what will stifle growth.  His “balanced government spending” scenario does not look so bad to me.

    And if we are really living in solvent land, governments will need to have doubloons in the vault (because they can only spend what they have already received in taxes).  This also means that they could build up a surplus over time which could be spent when the economy is not as strong.  In other words we would be asking governments to “save for a rainy day” rather than “borrow in the hope we will be able to afford it in the future.”

Minsky visits Solvent Land

I have now started to work my way through Book coverMinsky’s papers in “Can “It” Happen Again?: Essays on Instability and Finance” and I began to wonder what Minsky would make of “Solvent Land” – a world without debt.

If he could visit this wonderful place, would he see different economic rules at work? Continue reading

If the facts don’t fit the theory, change the facts.

I know it’s been used before, but it describes some academic economic theories perfectly.

But I think Einstein actually said something different – he certainly came up with theories no one else had thought of!

Don Charisma


«If the facts don’t fit the theory, change the facts.»

— Albert Einstein


DonCharisma.com-logo-4 Charisma quotes are sponsored by DonCharisma.com – you dream it we built it … because – “anything is possible with Charisma”

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More on solvent land

Treasure chestIn my last post I introduced the idea of solvent land.  This is a place where you cannot borrow.  The economy uses dough which you carry in your wallet or purseand doubloons which are looked after in vaults by vault-mindersPlastic doubloons allow people to move money from their vault to someone else’s vault using electronic systems which can also be used for example by employers to pay employees and customers to pay suppliers.

Governments will also use doubloons which can come in lots of different varieties.  So there could be dollar-doubloons and euro-doubloons and sterling-doubloons; even scottish-doubloons.  Continue reading