How to make a difference

I guess the hardest thing about looking for a major change is that we cannot imagine what it would be like.  So moving from a world which bases almost all of its commercial transactions on debt to a world without debt is unimaginable.

But it was Einstein who said

Insanity is doing the same thing over and over and expecting a different result

And Henry Ford (founder of one of the biggest car manufacturers in the world) said (possibly quoting someone else)

If you always do what you’ve always done, you’ll always get what you’ve always got

Changing the world means doing something that hasn’t been done before.  If it’s been done before it isn’t a change!

It does not mean it is easy or that people will like it.  I don’t understand half of what Einstein said and when Henry Ford offered his Model-T in “any colour as long as it’s black” he may have lost a few customers.

So the question is – should we try?

And my answer is that we have tried the other way over and over and keep on getting the same results – personal, institutional and national debt which has become unmanageable.

So why not try something new and see if we can get a different answer – a world free of debt – economies which do not have built in mechanisms which automatically move from boom to bust – a world free of bankers who are forever trying to lend more money than we can afford – a world free of banking crises.

Vote for a policitian – you know you have to even though it does not make any sense

I have just been reading Paul Krugman’s long read in the Guardian entitled “The austerity delusion.”   I would like to say I disagree with him, because he is saying we should run government deficits – in other words allow governments to borrow – to get out of economic recessions and my whole blog is about stopping people and governments from borrowing.  But I cannot disagree with what he says – the main politicians are saying something to get our votes that just does not make sense.

I will say I disagree with the idea of running government deficits and refer you back to the white paper.  And give one main reason here. During his article Paul Krugman says

It’s true that you can’t run big budget deficits for ever (although you can do it for a long time), because at some point interest payments start to swallow too large a share of the budget. But it’s foolish and destructive to worry about deficits when borrowing is very cheap and the funds you borrow would otherwise go to waste.

At some point you do want to reverse stimulus. But you don’t want to do it too soon – specifically, you don’t want to remove fiscal support as long as pedal-to-the-metal monetary policy is still insufficient. Instead, you want to wait until there can be a sort of handoff, in which the central bank offsets the effects of declining spending and rising taxes by keeping rates low. As John Maynard Keynes wrote in 1937: “The boom, not the slump, is the right time for austerity at the Treasury.”

In my view this actually creates a “boom and bust” effect.  You borrow and stimulate the economy and help produce a boom and then you have to reduce borrowings – which stifles the economy and produces a recession.

But back to where we agree. George Osborne has been claiming that his austerity measures have been the thing that saved our economy when our George actually borrowed as much as the previous Labour government.  Yes, he introduced fiscal tightening but he has not kept it up.

10 year interest rates at 14 April 2015

10 year interest rates at 14 April 2015

But for some reason which Paul Krugman tries to explain we Brits seem to think that austerity is a good thing.  So the Labour line and the LibDem line is that we need to be cautious about spending (to differing degrees) and it is only the SNP who want to spend a lot more.

So all our main politicians seem to be ignoring general economic wisdom despite the wealth of economic evidence from the rest of the western world (except Greece).  And they are ignoring the successful growth policies adopted in these other countries in favour of a theory that seemed good in 2010 but has since been shown to be wrong.

But we don’t have much choice – if we want our votes to count we will almost certainly have to vote for a party that will give us austerity even though it makes no economic sense.

May the force be with you

At long last (they say) the ECB has embarked on Quantitative easing by “printing” over a trillion euros.

So will it work?

The initial signs are that it is doing what it is supposed to do – reduce interest rates on Euro loans.

But Robert Peston, the BBC economics editor is not convinced about the long term benefits. Various countries have already tried this approach (including the US and the UK). 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