The catch-22 continues. First, the Euro under pressure:
Second, the Pound under pressure:
Third, austerity in Britain:
Britain will be a “leading voice for fiscal responsibility” within Europe as it embarks on a sustained programme of cutting public spending, chancellor George Osborne said on Monday.
Announcing an initial £6.2bn of cuts for the current financial year, Mr Osborne said it was important to cut the deficit urgently so that debt repayments did not “spiral out of control.”
Fourth, a bank in Spain goes under:
The euro came under renewed attack on Monday as concerns over Europe’s fiscal problems intensified after Spain’s central bank took control of a savings bank.
CajaSur, a 146-year-old lender owned by the Catholic Church, was taken over by the Bank of Spain in the latest move by the central bank to restructure the country’s troubled mutually owned banks, or “cajas”.
Here’s the catch-22. Investors are worried about deficits, so they get out of bonds or demand higher rates and attack currencies. The response to that by governments is to slash spending: austerity. But austerity will crash out the economy, which will hurt the stock market and weaken the state’s ability to repay bonds.
As long as governments feel they are at the mercy of the hot money, and as long as the hot money insists that governments both be fiscally austere and have good economies, there is no way out.
Notice, that while China has significant issues, it does not have this issue because it does not rely on hot money. No smart government should. Currency flows are far too fast, not only should there be a tax on all currency flows but every smart country should make it essentially impossible to move large amounts of money in and out of its economy quickly without taking a huge haircut. Flighty money is more trouble than it’s worth. Money that wants to come, and stay, and really invest in the economy should be welcome, but fast money should be heavily discouraged. The harm done by such money is far larger than the good.
Likewise the hot money needs to be taught a lesson. Such “investors” seem to think that they deserve higher than market returns in exchange for lending money. The people borrowing money are expected to bear all the risk, and expected to get less than market returns (since they’re giving the surplus to the hot money). Would you borrow money under such circumstances? Of course not, which is why no one who doesn’t have a sure thing does, which is why the economy doesn’t grow, because the idle money thinks it deserves most of the returns and none of the risk, and entrepreneurs aren’t interested in that deal.
Greg
Let’s have a round of applause for the Harper Government, for egging this catch 22 on.
jo6pac
We’re all Balkan States now.
lambert strether
So how do we teach hot money a lesson?
Bernard
we are in the grips of the Banksters for good. When almost every European leader chooses to suck on the “short term vs long term” ideology of the Banksters it is just a matter of time before it crashes, quicker now, though. that they willingly buy into the scam of the BAnksters means they are getting rich off of the “outlook” that killed the Golden Goose.
they are actively intent on killing the Golden Goose due to their greed for having it NOW!!!! the goose would continue to lay golden eggs, but they, the European leaders in particular, are enabling the Banksters ( for lack of a better term) in their haste in killing the Golden Goose.
for years now, since ST. Ronnie’s realm started, they have been taking the golden eggs that the average American has been producing. ST. Ronnie is the patron saint of the Banksters. that’s why i particularly hope there is a hell. i don’t believe in such lunacies, but so many do i hope they are right.
how in the world do they expect the producers, to use Randian verbiage, the average worker who makes all the Golden Eggs possible to continue. eventually enough ignorant TV beer guzzling Americans will make the connection about the Banksters and the whole scam. i don’t think it will be soon though. St. Ronnie and his merry band of thieves have some pretty good experience at how to “rape, pillage and loot” whatever you and i make and blame it on “the man over there”.
we are so screwed it is hard to see any other alternative. the only question is “How long before the critical Mass situation occurs, not if but when.
with all the ignorant, partisan stupidity and hubris of the average American i hope the Europeans decide to fight in the streets for their money. i doubt Americans will leave the Lazy Boy chair lest they miss an episode of American Idol now that “Lost” is gone.
sow the wind and reap the whirlwind.
David H.
Taxing transactions and currency flows is the best way to deal with these problems, which is why it’ll never happen. As the pie continues to shrink the fight over it will get nastier and nastier. If it didn’t cause so much pain I’d really enjoy watching them eat themselves.
beowulf
The phrase that pays “Sovereign Credit”.
Thomas Jefferson prophesied: “If the American people allow the banks to control the issuance of their currency, first by inflation, and then by deflation, the banks and corporations that will grow up around them will deprive people of all property until their children will wake up homeless on the continent their fathers occupied … The issuing power of money should be taken from the banks and restored to Congress and the people to whom it belongs.” This warning applies to other peoples in the world as well.
Technically, a sovereign government needs never borrow. It can issue tax credit in the form of fiat money to meet all its liabilities. And only a sovereign government can issue fiat money as sovereign credit.
If fiat money is not sovereign debt, then the entire conceptual structure of finance capitalism is subject to reordering, just as physics was subject to reordering when man’s worldview changed with the realization that the earth is not stationary nor is it the center of the universe. The need for capital formation to finance socially-useful development will be exposed as a cruel hoax, as sovereign credit can finance all socially-useful development without problem.
http://www.henryckliu.com/page3.html
Ian Welsh
Lambert,
well, you could have let them take their losses in 2008. Now… not so easy. I would wait till after the 2010 elections, then I would remove all special facilities and other support from the banks, push all their crap back on their books, and then take over the ones that fail, wiping out the share holders and making the bond holders take their haircut.
I would put in currency exchange taxes and financial transaction taxes, I would build in delays for moving money in and out of countries (ie. taxes go way up if you move sell something in a shorter time period than 2 years, with lesser bumps at a year and 6 months.) I would let it be known that if bondholders don’t want to buy government bonds, the government will just print the money (MMT aside, you can’t infinitely print, but you can print up to the point where hyperinflation threatens, and that’s a long ways away).
You also have to move off oil in a really aggressive way, because that is something you have to buy, and the oilarchies will just jack up the price when you start playing games. They will jack it up massively, since it’s their stock/bond income you’re fucking with. So, you need to get the conservation savings, fast, you probably will have to go to price fixing for a couple years on gasoline (X gallons a week at low price, everything else at $5/gallon +, if you aren’t making money from driving around, expect to pay through the nose for it.)
None of this is undoable in theoretical terms…
dougR
Your post, Ian, and a host of other things (many of which you’ve written about), is what finally convinces me that mankind is doomed. When the smartest among us are this stupid (which for shorthand’s sake I’d define as “unwilling to move off of narrow self interest in order to save the planet, to save their fellow Americans’ jobs and livelihoods”), and when our equally “smart” political leadership prefer not to lead, but instead follow the dictates of the”short hot money”, to let BP try to save their well by turning the Gulf into the Dead Sea–yep–it’s curtains.
For years I’ve been living a bubble of optimistic understanding of the educability of human beings, that I formed in the early 1960s, when burgeoning technology and a dawning of social understanding about how people deserved to live better, and an awareness that corporations weren’t trustworthy and required regulation to make them so, seemed to sweep the political landscape and become (considering the times) reality. I interpreted that as evidence that mankind was on a roll, becoming ever more enlightened–from FDR through Eisenhower through Kennedy, and ever upward to a kind of Camelot. We were at the threshold of a new and enlightened time, we learned from the past! We got smarter about what works and what doesn’t! We turned our backs on outmoded views of the past and looked forward! (To those of you snickering, all I can say is A) I was in my twenties, and B) it really did look that way back then, on the ground.)
Ah well. It’s been fun sharing that pipe dream with you, Ian, since you were kind enough to share with us your pipe dream reply to Lambert. (Sure, THAT’ll happen.) I do think it’s important to keep calling and writing our corporations’ representatives in Washington (you know, the ones who pretend to represent US when it suits their purposes) and give them what-for now and then.
By the time the worst of all this hits, I’ll be gone. Still, though, it’s tough to look small children in the eye knowing what they’ll have to face.
Ian Welsh
Well Doug, it’s all cyclical. And you never know. Stirling and I had a long discussion the other night about risk vs. uncertainty. Short version: Risk is what you know might happen. Uncertainty is what you either don’t know could happen or you know but it’s so far out in left field you can’t really account for it.
For example, a major volcano could blow, lowering average temperatures by 5 degrees centigrade, throwing us into a mini ice age. Or a major nation could fall to fascism/totalitarianism, or we could get a gusher like in the Gulf, and it could wipe out a huge portion of the world’s sea-life, or we could get hit by a meteor, or… stuff I can’t even think of.
At the end of the day all we can do is deal in probabilities, and there is always hope. And if that hope dies, well, time goes on and I do believe humanity will probably survive.
Imagine living in the last days of the Roman empire, and knowing it (and many of them did). Maybe even figuring you know how to save it, but knowing as well that the politics and economics are so disfunctional that it just isn’t going to happen, even if it’s theoretically possible. Or imagine living in Sung China, as the Mongols bear down. You may have decades, but you can guess that they /are/ going to win… (though the Mongols weren’t bad to be ruled by, it was the conquest that sucked).
Which is to say, well, humanity’s been there before (including one point where we were down to maybe 15K population, iirc.)
Formerly T-Bear
Great later comments Ian.
I would add one to your should/oughta do list. Since the sixties and the advent of both euro-dollars and petrol-dollars and their free flowing worldwide transits, one thing that might have been done but wasn’t, was to charge these economically unattached funds for the safety provided by the banking system rather than providing overnight rent to them for their presence. This was then not an option under the banking rules that required a minimum retained balance on the books, provided by these economically ephemeral funds. Economically these funds as free moving bodies should be put into a condition of evaporation of their substance rather than further accumulation of substance.
lambert strether
15K, eh? That’s some chokepoint. I keep saying, “happiness and merit,” because the rent-seekers really, really don’t want you to be happy — there’s no rent to be had, there! And it would seem that one way to win merit is to make sure whichever 15K “remnant” makes it through has survival tools…. Probably — I certainly hope — that all happens long after I’m dead, but all the more merit, eh? (I don’t say that merit is to be found in being the remnant — none of that’s knowable, and small millenarian groups have a very, very bad history of teh crazy, and especially of teh patriarchal crazy). Rather like a seed bank.
lambert strether
Oh, I forgot to say: The above shows why gardening is important. It’s vital that the knowledge of how to grow food without relying on the food chain is dispersed as widely as possible. Ditto literacy. All the knowledge the rent seekers are systematically trying to destroy.
rumor
Ian, I grasp that China is potentially in quite a bit of trouble owing to a fairly immense asset bubble, but can you explain in a little more detail why and, more to the point, how China “does not rely on hot money”? Do they have currency flow controls of the kind you’ve mentioned here?
DancingOpossum
“gardening is important”
In more ways than one. Yep, my garden won’t keep me self-sufficient but it’s one small step, and a very enjoyable and fulfilling one to boot.
Another tip, which I have not yet taken: When you garden, take a tip from the pre-famine Irish and grow potatoes. You really can live on potatoes alone– millions of poor Irish did just that, quite happily and, research has found, very healthily (they made the mistake of not growing any backup plants, so when the blight came there was nothing else to eat–but we know better now, right?)
Garden. Raise chickens Teach people to read. Help your neighbors. Share your potatoes.
anonymous
Has a high-pressure system moved into the area? Headlines from today’s check of business section:
“Stocks under pressure” (CNN Money)
“Home prices remain under pressure” (Wall Street Journal)
It reminds me of those republican talking points, where suddenly every right-wing commenter is repeating the same phrase (lately, “obama wants to socialize 1/6 of the economy” has been showing up)
Anyway, this post of Ian Welsh’s brings more questions to me than agreement:
What is the concern about the euro having a lower exchange rate? With respect to which currencies? Same questions for the British pound.
With respect to the euro, the consensus viewpoint among non-neoliberal economists and politicians is that the EU needs to create a fiscal authority to go with the monetary authority, no? The “austerity”* route that the UK and Greece are embarking on has been underway in the Balkans, which has been shown to be disastrous for their economies:
http://krugman.blogs.nytimes.com/2010/05/14/they-have-made-a-desert/
Given that a fiscal authority cannot be created overnight, Greece can either take the “austerity” route or default and drop out of the EU. The U.K. already has fiscal authority so the only reason it “cannot” avoid the “austerity” route is that neoliberalism has a hold on the minds of the policy decision makers there.
What I haven’t seen or heard discussed is whether a fiscal authority would imply or require a taxing authority, but for now it’s moot anyway.
*Orwellian language note: austerity is defined as “self-denial”, but the policies being proposed are not self-denial. The policies proposed (and now underway) are the bankers and the EU denying the Greece middle and lower class. As has been pointed out by many observers, Greece is not being “bailed out,” the banks in Germany, France, and Spain are (primarily, IIRC).
anonymous
Also, there is this statement from Krugman:
“Actually, a weak euro helps Europe.”
http://krugman.blogs.nytimes.com/2010/05/09/its-916-pm-in-europe/
anonymous
Of course, just as with the republicans in the U.S., the Tories in the U.K. use “fiscal responsibility” as code for “we’re going to implement policies that favor our supporters while punishing our opponents.” In the U.S., the recent example was the bushian reign of error, where “fiscal responsibility” meant:
– cut taxes on the wealthy (which the republican obama left in place instead repealing)
– increase spending on the right-wing jobs programs: weapons making and hiring mercenaries
– write into legislation a drug-buying policy that guarantees hundreds of billions in profits for drug makers
I wonder what it will mean for Tory proposals?
anonymous
By that reckoning, the “hot money” is making the neoliberal mistake: if governments are “austere”, then they will not have “good economies”, that is, the austerity will cause the GDP to shrink.
It would be helpful (to my understanding, at least) if some of this that you are describing were to be unpacked somewhat:
– Gov’ts. fund deficits by selling bonds, short-term and long-term
– Short-term bonds are perceived to be lower risk and therefore sells for a lower price
– Gov’ts. want to pay the least amount that they can and so sell lots of short-term bonds
– But short-term bonds need to be “rolled over”, paid for with some tax revenue and with new short-term bonds
– If a country’s economy is performing badly or even “less well,” then the buyers of short-term bonds become concerned that they will not be paid back, and do not buy the next issue of bonds.
– In order to attract the buyers, the gov’t. needs to raise the reward that the bonds will yield, that is, gov’t. debt becomes more expensive for the gov’t.
Your suggestion that the gov’t. sell long-term bonds instead of short-term bonds (telling the “hot money” to take a hike) does not appear to be related to the problem. The reason that the gov’t. wanted to attract “hot money” instead of long-term money is that “hot money” was cheaper. Gov’ts. can get investors to buy long-term bonds and get the stability that those imply so long as they are willing to pay the price. In the past decade, they have not been willing to pay the price (or, equivalently, they made “savvy” financial decisions that got them low-cost debt and kept them out of short-term political problems, but which is now biting them in the ass with short-term debt rollovers as the debt has piled up to an unsupportable level).
I’m hoping that someone can correct my understanding, because it appears to be almost completely at odds with what Ian Welsh has written.
P.S., I am not a “hot money” investor and have no conflicts of interest (that I know of). I’m not trying to promote a neoliberal policy (just the opposite).
Ian Welsh
1) If the government doesn’t sell much if any short term debt, but only medium term debt, the price of medium term debt will drop. If you want a safe government haven, you’ve got to take what the Treasury offers. In fact, there is a great deal of financial engineering which goes on, during the Bush regime for example, long term debt costs were at generational lows, but Bush didn’t sell hardly any and stopped the 30 year bond for technical reasons (which amount to forcing money into the housing markets). However, you’re mistaking what I’m saying anyway, what I’m saying is that you don’t let money leave the country or its investment for 2 years without taxing the hell out of it (and I would put in lesser taxes at 5 and 10 years). Why? Because you don’t want hot money, it does not go into useful economic activity.
2) Europe’s exports are less price sensitive than their necessary imports (aka. commodities/energy, which Europe does not have enough of its own of). Which is why European governments aren’t thrilled about the Euro dropping in value. I know it is an item of faith amongst some economists that a lower exchange weight is almost always a good thing, but in the current policy bind that is not the case and it doesn’t matter how low the Euro goes, it isn’t going low enough to compete with China on labor costs.
3) China does a variety of things to make it hard for money to get into the country except in ways it approves of, yes. It is not an open economy, and it is quite hard to get large amounts of Yuan exposure, actually, without doing a direct investment (Tons of people want Yuan exposure). The Chinese don’t want hot money for the reasons discussed above, they also don’t want to allow foreigners to buy control of their economy while that control is still cheaply priced. In the Asian currency crisis of 97 the economies which were least effected with those with some form of currency controls.
If you want into the Chinese economy, if you want part of their huge growth, you do it in ways they find useful or you don’t get in.
4) China, in addition to its bubble issues, is running up against the limits of the mercantalist model. Everyone industrializes under mercantalism, but a large continental power can’t stay on it.
5) Actually, what Greece has to do is collect the taxes which are being evaded. There are enough uncollected taxes in Greece to end their problems. But that would involve really sticking it to the rich, who run their government. So instead, they’re cramming down the poor and middle class, which is going to fail, because they can’t take enough money from them (and it will hurt their economy, depressing tax receipts further). However, if they aren’t willing to do that, they should just default and go off the Euro.
anonymous
Hmm. OK. I’m scratching my head.
If I’m “hot money” and I don’t like the price (and term) offered by the Greek gov’t. for its medium-term debt (2yr.? 5yr? 10yr?), that is, I don’t think it is worth the risk, I buy something else, no? Say, 2yr German bonds that pay less but have what I perceive to be a better price-to-risk balance. If there is enough “hot money” like me, then Greece doesn’t sell its debt. Does it hold its breath until “hot money” gives in and buys it? (“Screw you, Greece. You’re up to your neck in debt. You shouldn’t be taking on any more because then you’ll be drowning in debt. Hell, you’re already drowning. And then you’ll default. And then I get nothing back. Or 10 cents on the dollar. And I’m supposed to risk my savings on that X% that you’re paying. No, thanks. I’ll sit on my cash balance. Find some other sucker who considers your bonds to be a ‘safe haven’.”) Also, doesn’t this increase the cost of borrowing for the Greek gov’t.?
anonymous
Thanks for the clarification. I think I agree. Do you consider this to be the Tobin tax (or Financial Speculation Tax) or is there some important distinction?
anonymous
Why, it’s almost as if Greek rich want to turn Greece into the U.S.
Hence, the high price that “hot money” charges for taking on Greek bonds.
anonymous
More on “austerity”: 20 Percent Drops in GDP: Economists’ New Definition of Success
Ian Welsh
I was referring to the US when I was discussing short term bonds. Greece, well, Greece is fucked.
That’s the technical term. 🙂
It’s a Tobin tax in essence, it’s just that it’s something an individual government can do. There is the issue of “eurodollars” or other expatriated cash, but there are ways to dry up that money, and up to a point, it’s a good idea (especially for the US).
anonymous
Is that a goldman sachs term for paying teachers’ salaries and providing in-home health care for the elderly?
Tony Wikrent
Some interesting blowback is already evident: Greece is “implementing pharmaceutical cost controls that are slated to reduce their spending on drugs by 21.5% and save 1.9 billion euros annually” according to a rescued diary on Da Orange.
http://www.dailykos.com/storyonly/2010/5/24/869479/-Greece-Roars,-Pharma-Empire-Strikes-Back
If this catches on, at some point Big Pharma is going to be very unhappy with the idea of austerity.
I’ve been wondering for a couple of years now if there are marketing studies that essentially write off the bottom quintile or two as not having enough income to be worth marketing to. (A bit different angle than Citi’s infamous “Plutonomy” reports). Anyone know of anything along these lines.
anonymous
It’s going to be a while still before “cost controls” or anything like it can get through the Millionaires’ Club (u.s. senate). The most recent defeat was during the InsuranceCare period (what is the proper word for what the senate calls “debate”?) in the past year in which drug “re-importation” was defeated. And, of course, there is the “Medicare Part D” legislation that was passed by the republicans back in ’04.
Dean Baker has written many times that Americans are paying on the order of $300 billion per year more than they would if the drug company monopoly was not maintained. Why is this amount not written about any where else?
Formerly T-Bear
Two items:
In reference to the “modern phenomena” of high speed trading, application of a 0.01% tax on every trade would soon either put the act to rest, or fill the treasury coffers as well as well as protecting less advantaged players in the market. Your suggestion has had merit for decades, unfortunately those affected also own the government, the sole institution capable of effecting such law.
Interest income is the economic return on capital, rent is the economic return given for land, calling the one the other clouds and mucks up understanding the economic model. The use of “hot money” to describe aggregations of money detached from the economic process is unwise, here-to-fore that term was restricted to stolen or illegally obtained funds mostly involved in money laundering schemes, the language suffers from all too much abuse as it is. Communicating understanding is difficult enough as it is (only in Duhmerica is “bad” a form of approbation) without intentionally furthering the process.
Ian Welsh
Rent is FAR FAR more than just the economic return for land and is used and understood as such by economists. Hot money is not just used for illegal money and has not been for some time.
Formerly T-Bear
Got my information in a different era, under different circumstance, before the advent of “neoliberal” et al. Can’t say there has been an improvement in clear communication since. YMMV
Stirling Newberry
What is going on now is the withdrawing of “special facilities” and “quantitative easing” also known as the fiscal policy of giving money to banks, and calling it monetary policy. Yes, withdrawal symptoms are painful, but this is the play that they have to run: strengthen the dollar, allow fiscal crunches to hit smaller economies, and impose discipline, for which, read cutting the public sector’s control over the economy and give more to the top of the private sector. I would say, generically that this is bad, but the present public sector shows no sign of being any better at allocating long term capital than the elite of the private sector. Environmentally, the impact of lawns in suburbia, and towers in Dubai, is relatively much a question of which one one lives in.
The advantages short term are a lower stock market – which is good and lower oil and interest rates. Since we’ve elected someone to run the hard dollar play, we should hope it works. Of course failure will look like the last time the play was botched in 2008, namely, the global economy will roll off a cliff, weak institutions and economies will implode, and we will get a dogleg down in this economic crisis. In 1930, this is what happened, just as there was a nascent recovery, protectionism and monetary contraction hit. This was because in 1925 this mistake had not been made, and the result was a bubble boom and reduction in control of the economy by those who wanted prices normalized at their pre-world war levels. The reality is the same here: prices are now permanently higher because of Bush’s gamble, they will never go back to the low risk equilibrium without significant economic contraction. The people who are working now, around the world, will not go back to under-employment, however much some may wish it.
So far the people handling the levers of government have proven themselves just barely good enough. The just barely good enough outcome is a reimposition of the dollar drought, but with a wrenching down in the growth arc. The last two months show what stimulus can do, even in the present constrained economic resource reality. However, this is too much good times for the ordinary person, and we are unlikely to see it allowed to continue.
Formerly T-Bear
@ Stirling
Glad I do not have to explain that to these folks:
http://www.guardian.co.uk/world/2010/may/26/ireland-economic-collapse
It was hard enough being economically cleansed before the economic collapse there.
Stirling Newberry
“Democracy is the theory that the people know what they want, and they should get it. Good and hard.”
I would have preferred a different play, but this is what people voted for.
foolserrand
Isn’t there a saying that people, by and large, get the government they deserve?
anonymous
If the people vote for a candidate that promises “change,” and, when elected, the former candidate ignores all promises and protects the status quo, and the people were duped, then, yes, they get the gov’t. they deserve. They shouldn’t have been duped. They should have figured out that the candidate was lying to them.
Too bad, suckers.
Stirling Newberry
Obama told people what he meant by change. Next time read the clickwrap agreement more closely.
beowulf
Formerly T-Bear, Rent has another meaning– the greatest musical of all– just kidding:
Economic rent is defined as an excess distribution to any factor in a production process above the amount required to draw the factor into the process or to sustain the current use of the factor.
The disambiguation of economic rent from other unearned and passive increments has important implications for public revenue and tax policy. True economic rent can be collected by governments for the purpose of public finance without the adverse effect caused by taxes on production or consumption.
http://www.google.com/search?sourceid=chrome&ie=UTF-8&q=rents+wiki
Formerly T-Bear
@ beowolf
OTTOMH the word associated with what you are describing is “economic income accruing to economic production factors, e.g. wages accrue to labour, interest accrue to capital, profit accrue to entrepreneurship, and rents accrue to land, that word is still INCOME, sorry the word RENT is taken whether wiki likes it or not.
This problem arises when all other economic incomes are conflated with economic PROFIT and are not distinguished explicitly. When monopolist conditions control some segment of the market, either by horizontal monopoly or by vertical monopoly (monopolistic also includes markets controlled by a few market actors, fewer than a free market could normally support), that control extends to diverting incomes from economic factors under that control, conflating those incomes with their profit. See and read Adam Smith’s discussion on the nature of profit in “The Wealth of Nations” for a better dissection of the term.
Your last paragraph: “The disambiguation of economic rent …” is intellectual masturbation, serving no purpose, other than to obfuscate the language and make dismal the “science” of economics – pooping in the pants, so to speak.
Don’t need no fecking Wiki for support. 😉
anonymous
The word rent is taken, but the term economic rent, (which Beowulf used) is not, that is, it is not taken by the word rent. Ian Welsh might have been better off to refer to economic rent in his statement:
Here is a description of rent and rent-seeking that may be helpful:
Source: http://www.economist.com/research/Economics/alphabetic.cfm?LETTER=R#rent
Formerly T-Bear
@ anonymous
The major problem evident is that economic rent traditionally describes the income due to the participation of land in the economic process; that can take many, many forms, no argument.
That is entirely different than what is being described as (a set of) behaviors by economic actors, (your enumerated list does fine). One would think in a language priding itself in possessing over a million words, one would have a word like say economic extortion that would do the job without subrogating another term already in economic usage.
Your example of the footballer is misleading, the footballer may be willing to accept 10k but the offered figure of 50k removes the unique skills and talents from the marketplace therefore creates the value, clearly the willing designs of an actor out to monopolize that market for the actors economic gain, therefore the notion that there is an exorbitant economic rent being paid that taxing “having no adverse economic impact” does not in fact exist, this illusion leads to economic delusion. This is also why the example of monopolistic conditions was given, that being the distortion monopolies effect upon economic markets (See Marx, also Thorsen Veblin). Such practices make proletariat out of the rich as well, only economic entities capable of economic market manipulation remain as the economic elite.
Please find another nom-de-blog, the one you are using is meaningless and likely not to get a response.
Formerly T-Bear
@ anonymous again
Two other niggles:
*Classic examples of rent-seeking, a phrase coined by an economist, Gordon Tullock, …* – nor was the hubris of Laughter(sic) and his curve massively impressive.
*• a UNION demanding higher WAGES without offering any increase in PRODUCTIVITY;* – PRODUCTIVITY is an argument for increase. The demand for higher wages is based upon the requirement that WAGES are sufficient to support the worker, their spouse, their offspring, provide for their education, to provide sustenance in age and for maintaining health. It is a requirement of employers those conditions are met, the UNION only empowers the individual worker against the economic power of the entrepreneur employing labour in the economic process.
anonymous
Ian Welsh writes (24 may ’10):
Paul Krugman writes (today, 7 June ’10):
http://krugman.blogs.nytimes.com/2010/06/07/madmen-in-authority/
So, Ian says that “hot money” (or, as Krugman says, “markets”) insists on draconian cuts, while Krugman says (based on interest rates) that there is no such demand. What is Krugman missing that Ian Welsh is seeing? (Or am I misinterpreting something here? I have yet to learn the Tao of Experts.)