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Why your investment adviser can’t advise the world
Kurt Cobb, Resource Insights
As stock markets around the world continue to plummet, most investment advisers are telling their long-time clients to stay put and wait for a rebound. With the world overflowing with newly printed (actually, electronically created) money waiting to be invested, a rebound might come despite sentiment that is now so extremely negative.
But the problem with investing (as opposed to saving) is that it is primarily a social phenomenon (rather than an individual one) and therefore has some of the characteristics of both a Ponzi scheme and a zero-sum game.
… Now, some will complain that if there is overall continuous growth in the economy, the latecomers will make money as the economy continues to expand. There is some truth to this, and yet the fabulous expansion of the world economy in the 20th and early 21st centuries hasn’t prevented wide swings in markets that have made paupers of the latecomers. Whether that growth can continue is an open question since we are facing mulitple resource limits and the headwind of climate change.
But setting aside the growth question, we can still see that the social aspects of investing make it far more hazardous than what we call saving. For if a lot of people decide all at once to sell assets similar to what we ourselves own, they can create a panic that leads to much lower prices. And, that, of course, is what we’ve seen in the past several months.
… The upshot is that the vast majority of people are not fit to participate in the casino of investing. Their talents lie elsewhere. We are about to return to a world where a much smaller group of people risk capital in the stock, bond and commodity markets, people who can afford to or at least think they can afford to do so. For everyone else it will be back to the staples of savings: bank accounts, savings bonds, perhaps some gold coins, silverware, jewelry or a little land.
(22 February 2009)
Kurt Cobb is a regular contributor to EB.
Which capitalism will it be?
Benjamin R. Barber, Newsday
Reform cannot just rush parents and kids back into the mall, it must encourage them to shop less
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As America, recession-mired, enters the hope-inspired age of Barack Obama, a struggle for the soul of capitalism is being waged. Can the market system finally be made to serve us? Or will we continue to serve it?
George W. Bush argued that the crisis is “not a failure of the free-market system, and the answer is not to try to reinvent that system.” But while it is going too far to declare that capitalism is dead, the philanthropist George Soros is right when he says that “there is something fundamentally wrong” with market theory.
The issue is not the death of capitalism but what kind of capitalism – standing in which relationship to culture, to democracy and to life?
President Barack Obama’s Rubinite economic team seems designed to reassure rather than innovate, its members set to fix what they broke. But even if they succeed, will they do more than merely restore capitalism to the status quo ante, resurrecting all the defects that led to the debacle?
Benjamin R. Barber, a distinguished senior fellow at Demos, is the author of “Jihad vs. McWorld and Consumed: How Markets Corrupt Children, Infantilize Adults and Swallow Citizens Whole.”
(22 February 2009)
The Anti-Economy
RogerK, The Oil Drum: Campfire
How the Pursuit of Private Fortunes is Destroying Community Wealth
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Ever since I became aware that oil depletion was a near term problem I have devoted a considerable amount time and intellectual energy thinking about possible ways to structure an economic system so that it does not require constant growth for ‘healthy’ functioning. If human beings are going to be around on this planet for the long term then growth in resource consumption must to come to an end. I know, of course, that many regular readers of TOD believe that economic growth and growth in resource consumption can be decoupled, if not completely so, then at least sufficiently so that we can comfortably get richer for many decades into the future without mussing the hair of the biosphere. Of course given the fact that a highly respected biologist like E. O. Wilson estimates that species extinction rates have probably already risen to 1000 times prehuman levels, one could argue that we have already gone beyond the ‘mussing’ stage to the ‘falling out in chunks’ stage with respect to the state of health of the global coiffure. However, it is not my intention in this essay to try to prove that these optimistic assessments about the extendability of the economic status quo are false. I am simply going assume that a complete decoupling of economic growth from resource consumption is impossible, so that, sooner or later we must stop expanding our total economic output.
Many people have claimed (I am one of them) that our current economic system requires constant growth for healthy functioning. This growth orientation of the economy is oftentimes blamed solely on our financial/monetary system. Granting unearned purchasing power to businesses and/or individuals in exchange for a larger amount of purchasing power in the future requires growth in the net production of use value. The excess purchasing power owed to the financier has to come from somewhere. Either purchasing power is taken away from someone else, or the net production of use value must increase. Since finance as means of robbery cannot be a politically stable institution, the desire for real growth in the production and sales of use value predominates.
Of course even in a declining economy investment in infrastructure may be a desirable thing in order to limit the extent to which the economy will decline.
RogerK, a part time hardware engineer working in San Jose California who has spent a lot of time over the last four years thinking and writing about the finite world paradigms which are needed to replace the ‘no limits’ paradigm which has become the cultural norm of modern industrial society.
(22 February 2009)
Who’ll Stop the Pain?
Paul Krugman, New York Times
So people at the Fed are troubled by the same question I’ve been obsessing on lately: What’s supposed to end this slump? No doubt this, too, shall pass — but how, and when?
To appreciate the problem, you need to know that this isn’t your father’s recession. It’s your grandfather’s, or maybe even (as I’ll explain) your great-great-grandfather’s.
Your father’s recession was something like the severe downturn of 1981-1982. That recession was, in effect, a deliberate creation of the Federal Reserve, which raised interest rates to as much as 17 percent in an effort to control runaway inflation. Once the Fed decided that we had suffered enough, it relented, and the economy quickly bounced back.
Your grandfather’s recession, on the other hand, was something like the Great Depression, which happened in spite of the Fed’s efforts, not because of them. When a stock market bubble and a credit boom collapsed, bringing down much of the banking system with them, the Fed tried to revive the economy with low interest rates — but even rates barely above zero weren’t low enough to end a prolonged era of high unemployment.
Now we’re in the midst of a crisis that bears an eerie, troubling resemblance to the onset of the Depression; interest rates are already near zero, and still the economy plunges. How and when will it all end?
… So will our slump go on forever? No. In fact, the seeds of eventual recovery are already being planted.
Consider housing starts, which have fallen to their lowest level in 50 years. That’s bad news for the near term. It means that spending on construction will fall even more. But it also means that the supply of houses is lagging behind population growth, which will eventually prompt a housing revival.
… The same story can be told for durable goods and assets throughout the economy: given time, the current slump will end itself, the way slumps did in the 19th century. As I said, this may be your great-great-grandfather’s recession. But recovery may be a long time coming.
The closest 19th-century parallel I can find to the current slump is the recession that followed the Panic of 1873. That recession did eventually end without any government intervention, but it lasted more than five years, and another prolonged recession followed just three years later
(19 February 2009)
The Global Collapse: a Non-orthodox View
Walden Bello, MR Zine
Week after week, we see the global economy contracting at a pace worse than predicted by the gloomiest analysts. We are now, it is clear, in no ordinary recession but are headed for a global depression that could last for many years.
The Fundamental Crisis: Overaccumulation
Orthodox economics has long ceased to be of any help in understanding the crisis. Non-orthodox economics, on the other hand, provides extraordinarily powerful insights into the causes and dynamics of the current crisis. From the progressive perspective, what we are seeing is the intensification of one of the central crises or “contradictions” of global capitalism: the crisis of overproduction, also known as overaccumulation or overcapacity. This is the tendency for capitalism to build up, in the context of heightened inter-capitalist competition, tremendous productive capacity that outruns the population’s capacity to consume owing to income inequalities that limit popular purchasing power. The result is an erosion of profitability, leading to an economic downspin.
To understand the current collapse, we must go back in time to the so-called Golden Age of Contemporary Capitalism, the period from 1945 to 1975. This was a period of rapid growth both in the center economies and in the underdeveloped economies — one that was partly triggered by the massive reconstruction of Europe and East Asia after the devastation of the Second World War, and partly by the new socioeconomic arrangements and instruments based on a historic class compromise between Capital and Labor that were institutionalized under the new Keynesian state
But this period of high growth came to an end in the mid-1970s, when the center economies were seized by stagflation, meaning the coexistence of low growth with high inflation, which was not supposed to happen under neoclassical economics.
Stagflation, however, was but a symptom of a deeper cause: the reconstruction of Germany and Japan and the rapid growth of industrializing economies like Brazil, Taiwan, and South Korea added tremendous new productive capacity and increased global competition, while income inequality within countries and between countries limited the growth of purchasing power and demand, thus eroding profitability. This was aggravated by the massive oil price rises of the seventies.
… Capitalism tried three escape routes from the conundrum of overproduction:
… Escape Route # 1: Neoliberal Restructuring
… Escape Route # 2: Globalization
… Escape Route # 3: Financialization
This is the longer version of an essay by the author released by the British Broadcasting Corporation (BBC) on 6 February 2009.
Walden Bello is professor at the University of the Philippines, Diliman; senior analyst at Focus on the Global South; and president of the Freedom from Debt Coalition.
(11 February 2009)
A view from the left. Originally at Philippine Daily Inquirer.
