Bob Diamond resigns

[mjdgreg]

I stated categorically that the BoE is NOT an independent body. But it has had powers to decide interest rates devolved to it, and can act in an independent manner on that issue.

We're changing it to 'can' act now are we. Having read my post about how much political influence there is over interest rates at least you have given some ground.

[BillyStubbsTears]

There we have it then. Mickonomics is the way forward. John Maynard Keynes was wrong. Milton Friedman was wrong. That's the two 20th century giants whose economic theories have been applied throughout the capitalist world for 65 years comprehensively demolished.

I salute you Mick. Your combination of unsubstantiated opinion and copying/pasting from websites has set the terms of the discussion for economic practice in the developed world. Your Nobel Prize awaits.

As someone who simply wasted his time with text books and learning about fundamentals, I will from now take your approach and simply state that the world's experts, whose theories have been tested and checked by years of hard work and effort are wrong. Thank you for pointing out my errors. It's been a useful experience.

[BillyStubbsTears]

"Can" as in "is free or able to". "Is at liberty to". "Has the capability and authority to".

Or have I misunderstood. Do you have your own personal definitions of the meanings of words that run counter to the ones that the rest of the world employs? Just like you have your own concepts of economics that the rest of the world doesn't understand.

[mjdgreg]

John Maynard Keynes was wrong. Milton Friedman was wrong. That's the two 20th century giants whose economic theories have been applied throughout the capitalist world for 65 years comprehensively demolished.

At last you've seen the light and realised that these economists were both cranks.

[mjdgreg]

I'm still waiting for an answer. Why did unemployment start going up in 2005? There wasn't a recession and Gordon was splashing plenty of cash about so how do you explain that one? From everything you say unemployment should fall not rise when a government is spending billions it hasn't got.

To make it easier I'm going to ignore the fact that Gordon kept unemployment artificially low by making it easier to allow people to claim Disability Living Allowance. This kept over 0.7m people off the unemployment register. I'll also ignore the fact that he kept people in education for an extra 2 years and encouraged a massive increase in university education to keep people off the jobless total.

[Donnywolf]

I'm still waiting for an answer. Why did unemployment start going up in 2005? There wasn't a recession and Gordon was splashing plenty of cash about so how do you explain that one?

Let me make this PLAIN from the start. I do not really want a reply ... as I have NO wish to keep this and other threads alive longer than they deserve

Surely one* of the reasons unemployment MAY have risen in the year you cited could be that the EU expanded and a host of Countries e.g. Poland Hungary The Baltic States Malta Sloakia Slovenia etc etc suddenly had a mass exodus of willing workers who could now move with economic freedom throughout Europe

It is not inconcieveable that LOTS of them came to England and sought and got work and so made lots more of the "local" poulation "sign on"

* I dont think any SINGLE factor probably accounts for this

[Filo]

There wasn't a recession and Gordon was splashing plenty of cash about so how do you explain that one? From everything you say unemployment should fall not rise when a government is spending billions it hasn't got.

 

Maybe Gordon was splashing that cash about trying to prop up the Banking sector, which was in real danger of imminent collapse, and where would that leave people like your good self who`ve been prudent and saved their cash? you would n`t have had any if the Banking Sector had been left to fend for themselves letting the markets dictate their fate! you`ve a lot to thank Gordon and the Leftie barmpots for Mick!

[BillyStubbsTears]

I'm still waiting for an answer. Why did unemployment start going up in 2005? There wasn't a recession and Gordon was splashing plenty of cash about so how do you explain that one? From everything you say unemployment should fall not rise when a government is spending billions it hasn't got.

Mick.

A Keynes or a Friedman would say that there's a very simple and logical explanation. This is what they would say.

In the early 2000s, most industrialised economies experienced a minor recession. USA did, Germany did, Japan did, France did etc etc.

We didn't. The combination of monetary easing by the BoE and (a small) fiscal stimulus by the Treasury meant that our GDP growth remained broadly steady and unemployment continued to fall. By 2004, unemployment was lower than it had been for 26 years. Friedman would argue that it was approaching NAIRU, and indeed, inflation did start to rise, from ~1% to ~2.5%.

To head this rise in inflation off, The BoE increased interest rates (less than a year before the 2005 Election interesting timing for a Bank that was under Brown's control, eh?) The result was that some demand was taken out of the economy (which is what raising interest rates does), inflation stabilised at ~2.5-3% and as a result, there was a small rise (from ~5% to ~5.5%) in unemployment.

Keynes or Friedman would say that this was classic macroeconomic management going on.

But we've kicked out Keynes and Friedman and replaced them by Mickonomics. What's the Mickonomic answer? Did Brown secretly go out at night with a cig lighter and set fire to jobs?

[MachoMadness]

John Maynard Keynes was wrong. Milton Friedman was wrong. That's the two 20th century giants whose economic theories have been applied throughout the capitalist world for 65 years comprehensively demolished.

At last you've seen the light and realised that these economists were both cranks.

Been following this debate with interest, but when I read this I wish I had a drink with me so I could spit-take. I might not be an economic expert, but I can still see the flaws in denying decades of empirical evidence and just saying "that's wrong". Nobody is going to listen to you when you start sticking your fingers in your ears and saying history's great economists, who's theories have been tried and tested since the Great Depression of the 30s and were put to effective use by Roosevelt's New Deal, are wrong, just 'cos you say so. It's proven by empirical evidence. It's fact. It happened. Or was Roosevelt some blind leftie nutjob who used "crank" theories?

[mjdgreg]

mjdgreg.

A Keynes or a Friedman would say that there's a very simple and logical explanation. This is what they would say.

In the early 2000s, most industrialised economies experienced a minor recession. USA did, Germany did, Japan did, France did etc etc.

We didn't. The combination of monetary easing by the BoE and (a small) fiscal stimulus by the Treasury meant that our GDP growth remained broadly steady and unemployment continued to fall. By 2004, unemployment was lower than it had been for 26 years. Friedman would argue that it was approaching NAIRU, and indeed, inflation did start to rise, from ~1% to ~2.5%.

To head this rise in inflation off, The BoE increased interest rates (less than a year before the 2005 Election interesting timing for a Bank that was under Brown's control, eh?) The result was that some demand was taken out of the economy (which is what raising interest rates does), inflation stabilised at ~2.5-3% and as a result, there was a small rise (from ~5% to ~5.5%) in unemployment.

Keynes or Friedman would say that this was classic macroeconomic management going on.

But we've kicked out Keynes and Friedman and replaced them by Mickonomics. What's the Mickonomic answer? Did Brown secretly go out at night with a cig lighter and set fire to jobs?

So you accept what these cranks tell you. Who do you support Keynes or Friedman? On most things they hold diametrically opposing views. You seem to be in the Keynes camp but then deftly quote Friedman if it suits you. The fact that you regard these two nutjobs as the best economists in the world over the last however long says a lot about what you know about economics. The economist that knows what he is on about is Peter Schiff.

So you accept 1.5m as being an unemployment price well worth paying. Well I and many right-minded people don't. You base your logic on this. We all know that the published government figures on unemployment always underestimate the true level of unemployment so it is reasonable to assume that the real figure was quite a bit higher than 1.5m. If you add in the extra 0.7m who claimed DLA instead of the more relevant Job Seekers Allowance and all the students who were made to stay on at school and all the economically inactive people that don't show up in the statistics, the true figure would have been well over 2.5m. So your theory doesn't work and your logic is flawed. So accepting that the real level of unemployment was over 2.5m why did it start rising?

[mjdgreg]

MachoMadness, I don't say Keynes and Friedman were cranks just for the sake of it. Billy quotes these two who hold diametrically opposed views to each other. How can they both be right? It's impossible. The economist that he should be listening to is Peter Schiff. He predicted what was going to happen. He is anti Keynes. Billy is pro Keynes (but also pro Friedman when it suits). Talk about contradictory. Here is a youtube clip of Peter Schiff being ridiculed about his 'correct' views by pretty much everyone out there, especially the Keynes followers such as Billy. Nearly everything he says about the US can also be applied to the UK.

http://www.youtube.com/watch?v=2I0QN-FYkpw

[Donnywolf]

Also from Youtube .... clue : Listen to the script !

http://www.youtube.com/watch?v=hnTmBjk-M0c

[mjdgreg]

Maybe Gordon was splashing that cash about trying to prop up the Banking sector, which was in real danger of imminent collapse, and where would that leave people like your good self who`ve been prudent and saved their cash? you would n`t have had any if the Banking Sector had been left to fend for themselves letting the markets dictate their fate! you`ve a lot to thank Gordon and the Leftie barmpots for mjdgreg!

Gordon should have let the banks go bust. Yet another of his huge blunders. That's how capitalism works. But they knew full well that the dimwit would not let this happen so they took ridiculous gambles knowing that if they lost Gordon would come to the rescue with taxpayer's money.

I took my money out of banks years ago and put it all into property, gold or my gambling account. When the banks eventually do go bust (trust me, it is just a matter of time) they won't be taking me with them.

[mjdgreg]

Surely one* of the reasons unemployment MAY have risen in the year you cited could be that the EU expanded and a host of Countries e.g. Poland Hungary The Baltic States Malta Sloakia Slovenia etc etc suddenly had a mass exodus of willing workers who could now move with economic freedom throughout Europe

It is not inconcieveable that LOTS of them came to England and sought and got work and so made lots more of the "local" poulation "sign on"

Another massive Brown blunder. We could have severely restricted the number of immigrants but didn't. Gordon wanted them to come to keep wages down and indirectly inflation. British jobs for British workers. Don't make me laugh.

[mjdgreg]

 

4) I'll repeat. When the recession exploded and unemployment rose above NAIRU, Brown did the correct thing of kicking in the big fiscal stimulus. It worked and would have continued to work had Gideon not pulled it.

Given that the coalition have only reduced public spending by 0.8% how do you explain your comment 'It worked and would have continued to work had Gideon not pulled it.' Seems to me that according to you, unemployment should be falling, not rising because we are still spending lots of money just as you and Mr Keynes would want us to. Why do you think George has 'pulled it'?

[BillyStubbsTears]

Mick

I have a suggestion for how you could save more money. Get rid of your colour TV licence. It's unnecessary as you only see the world in black and white.

Where to begin?
1) It is simplistic and deeply ignorant of the detail to call Keynes and Friedman "diametrically opposed". Frankly it's silly. The both accept that both fiscal and monetary policy influence macroeconomic performance. where they differ is on the preferred balance between the two approaches. Keynes lent towards fiscal measures, Friedman strongly towards monetary approaches. Indeed Friedman's life work was an attempt to provide a theoretical framework to demonstrate that fiscal tinkering was unnecessary.

They differed, but to say that they were diametrically opposed is silly. They agree on the basic mechanics of economics, but differ on the conclusions. The truth, usually, as in most things, lies somewhere between the extremes of the fundamentalists on either side.

My take, for what it's worth is that Friedman's assessment of the power of monetary policy is extremely powerful, but not sufficient in itself to stabilise economies that veer wildly off track. So, monetary approaches are suitable in relatively calm times, but hopeless in severe recessions. Keynes's work was a response to the Great Depression and an attempt to ensure that one never happened again. Unfortunately, he has been out of favour for a generation. We need to re-learn his lessons, and bloody quickly.

2) I take my hat off to Schiff. He called it right. But that doesn't mean that I agree with his assessment of how you get out of a Depression. A person can predict that smoking will give you lung cancer, but you wouldn't automatically assume therefore that the same person would know how to cure lung cancer. His claim that a big recession is welcome and necessary is like a Catholic saying you need to suffer to atone for your sins. It's not true, but it sounds plausible. Keynes shows precisely and in great detail exactly how to get out of a recession like this. It sounds counter intuitive, but it works and had been demonstrated to work. It requires demand to be generated by Govt spending. There is no other way and there never has been any other way. Schiff's medicine leads you straight down the Japan route of institutionalised zero growth and the consequent REAL explosion of debt.

And to call his critics "Keynesians" is bloody stupid. The arguments they were using are far closer to the Friedman idea of the sanctity and logical sanity of the Market.

By the way, Schiff wasn't the only far-sighted one. In 1998, Paul Krugman (Keynesian to his toe nails) wrote "The Return of Depression Economics" in which he ominously flagged up how the rejection of Keynesian approaches had led to massive recessions in many parts of the world during the 90s - Japan, Korea, Thailand, Mexico, Argentina. He was crying out, 14 years ago for America and Europe not to make the same mistakes. They did (Brown included).

3) Of course I don't think 1.5m unemployed is "acceptable". What I don't know is any way for us to have lower unemployment without inflation kicking in. At least not in the world that has adopted a predominantly Freidman-esque economic approach. If you know how to do it then explain, quick.

By the same token, I don't think it is acceptable that my car uses more diesel when I drive faster. I want my car to do 100mph and 200mpg. For some reason, it just won't do it. I don't like it, but I don't have any way to correct it. Neither do the finest minds in automotive engineering.

[mjdgreg]

Here's a little history lesson about the folly of following a Keynesian approach. An approach that Ben Bernanke is currently following which is going to have disastrous consequences for the USA and indirectly the world. Unfortunately you are wrong when you say Keynes has been out of favour for a generation. His deluded strategy is alive and well in many economies today.

"We used to think you could spend your way out of recession by boosting government spending. I tell you, in all candour, that option no longer exists. And in so far as it did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by higher unemployment as the next step…"

Who said this? Jim Callaghan delivered these words to the 1976 Labour party conference.  The penny had finally dropped that a Keynesian approach to economics caused much bigger problems than it solved. 

Successive governments had used 'deficit financing' and high state spending to 'pump-prime' economies. Such policies plunged the world's most advanced economies into crisis after crisis - with the cash propping up inefficient industries and the markets lending only at escalating interest rates.

Prior to Callaghan's speech, the history of the Labour party, in particular, was littered with grim episodes involving huge national debts, soaring inflation and a plunging pound. But this speech was a turning point, marking the start of the Western world's painful, but essential, conversion to monetarism, lower tax and independent central banking.

Throughout the 1980s, as unemployment spiralled, and the UK endured long overdue structural changes, clearing up after years of Keynesian consensus, such 'small government', policies weren't popular. But eventually, certainly by the early 1990s, everyone realised - as Callaghan was brave enough to admit - that high state spending is a mug's game. Some die-hards such as Billy kept the red flag flying, but those with a chance of gaining power had grasped deficit-financing doesn't work - and wrecks any nation's long-term economic health.

Unfortunately Mr Brown's response to economic woes, was to go all Keynesian on us.  Brown, deep down believed in big government and big deficits. In today's world of fibre-optic currency dealing and round-the-clock markets, such policies are even more fatal than during the 70s. He was warned by the International Monetary Fund not to try 'spending his way out of a slowdown'. Back in 1976, deficit-spending forced Labour's then Chancellor, Denis Healey, to beg for an IMF bail-out. Brown didn't learn the lessons from history. The UK has the highest budget deficit in the G8. Other leading nations pared their borrowing, but Brown just let rip. In June 2008, the Government took on another £9.2bn of debt on our behalf - 40 per cent higher than June 2007. Labour, disgracefully,vastly exceeded its own borrowing forecasts every year for the previous eight years.

The IMF wanted 'concrete and front-loaded plans to bring debt back below the ceiling'. Ministers claimed the 40 per cent of GDP threshold remained. But they excluded 'temporary' Northern Rock liabilities, much of the Private Finance Initiative and a host of other items were swept off the nation's balance sheet. The markets and ratings agencies weren't fooled. The IMF worried about Britain losing its fiscal credibility, Sterling weakened and inflation rose. Unemployment carried on creeping up. The UK was now running a Keynesian economic policy.

"Yes I have allowed borrowing to increase, because that's the right thing to do to support the economy" said Brown. He demonstrated that he knew nothing about economics, or the history of his own party. Borrowing on this scale was insane.

'There are times,' said Jim Callaghan after he left office, 'perhaps once every 30 years, when there is a sea-change in politics, a shift in what the public wants and approves of.'

That shift is now happening. The public, the vast majority, anyway - wants lower taxes, less public sector waste and,  lower government spending. Brown simply didn't get that the clown.

So there you have it. Keynes was a crank and all those that followed him were fools. Especially Gordon Brown and Ben Bernanke. Anyone who still advocates following this approach  needs to brush up on their history. I will now make a prediction that within the next few years the USA is going to implode very badly and drag the rest of the world down with it because they are currently following a Keynesian approach. Their only hope is that Obama doesn't get in again.

[mjdgreg]

Your hero Paul Krugman is also a crank. Why won't he debate with Peter Schiff? Because he knows he'd get a serious battering.

http://www.youtube.com/watch?v=Z9KyzHEeHgs

[BillyStubbsTears]

Mick

1) Copying and pasting huge chunks of slanted opinion is not how discussion works. Anyone can trawl the Internet and find an opinion that supports their own. You in particular are a master at it. Doesn't make it correct.

2) So a Labour PM was entirely correct when he said something that you agree with? He's not some Lefty crank? Do I need to point out the infantile nature of this selective quoting?

3) For the record, after Callaghan's speech, the UK did reject Keynesianism and embarked on a decade long experiment in fundamental monetarism. Callaghan had criticised Keynesian approaches as building in higher inflation and higher unemployment.

By the time Thatcher resigned, it was 14 years since Callaghan's speech and monetarism had ruled the roost for that time. Thatcher's Govt very pointedly refused a Keynesian stimulus in the 80-81 recession. They said that the hard monetarist approach was necessary to drive down inflation and set the scene for stable employment.

So, after all that pain, what happened? By the time Thatcher resigned, unemployment was double what it was in 79, and rising. It didn't get back down to 1979 levels until 2003 (and you say that even that level is unacceptable Mick). Inflation was higher than in 79 and rising. Govt debt to GDP was lower than in 79, but about to rise again as the economy fell off a cliff into another deep recession.

Following Thatcher's ejection, we had 15 years of a pragmatic compromise between monetarist control of interest rates and Keynesian deficit spending when a stimulus was required. That gave us the longest spell of continued growth in 120 years.

[BillyStubbsTears]

Mick, you've gone all Goodness Gracious Me on us again.

"(Insert name of anyone Mick diesn't agree with). Crank!"

'kin hell, it's like being in the playground again. EDIT: And I said that before I realised that you had taken to posting YouTube cartoons to support your argument. What's next? Flicking bogies and calling people poo-poo face?

[BillyStubbsTears]

One final question Mick, that gets right to the heart of the debate.

Why is high Govt debt a bad thing? Give me your take on why it is bad and what the consequences of it are.

[mjdgreg]

Given that the coalition have only reduced public spending by 0.8% how do you explain your comment 'It worked and would have continued to work had Gideon not pulled it.' Seems to me that according to you, unemployment should be falling, not rising because we are still spending lots of money just as you and Mr Keynes would want us to. Why do you think George has 'pulled it'?

Still waiting for an answer.

[mjdgreg]

Why won't Krugman have a debate with Schiff?

[mjdgreg]

Why did unemployment rise from 2005 under Labour when the true rate was over 2.5m making your original answer based on 1.5m invalid?

[mjdgreg]

Do you accept that the BoE is politically influenced?

[mjdgreg]

Why do you say the Keynes school of thought has been missing for a generation when the world's biggest economy is controlled by Ben Bernanke who is a massive Keynes follower?

[mjdgreg]

Why do you think people should spend to get us out of the mess we're in when most of them are in debt, have seen their houses fall in value (and they are going to keep falling), wages being frozen/cut and standard of living falling? Why don't you think it is right for them to get their debts under control before they start spending again? What is wrong about living within your means?

[mjdgreg]

What would happen if the government found that no-one was daft enough to lend them any more money because we've reached the point when there are serious doubts about us having the ability to pay it back? What would Mr Keynes do then?

[mjdgreg]

Do you think Gordon was correct to bail out the banks?

[mjdgreg]

Why is high Govt debt a bad thing? Give me your take on why it is bad and what the consequences of it are.

I think anyone who has read my previous posts already know that I have answered this question in graphic detail. But seeing as you still haven't got the message I'll give a brief summary of my views.

High government debt means a high budget deficit which will cause a high current account deficit. The situation will adversely affect the interest rate, exchange rate and country's competitiveness. The growth of GDP will be down, exports will decline, while imports will increase. Unemployment will rise. The National Debt will increase.

It is also morally wrong to expect future generations to pay higher tax and have a worse standard of living than us because we have been living beyond our means. I could go on but by now hopefully you get my drift.