BARVENNON.COM
AUSTRALIAN DIARY
8th February 2009. The Second Great Depression (October
2007 -
2011).
The "Great Depression" was marked by a falling stock exchange from 1929
to 1933. In those 3-4 years the DJIA (Dow Jones Industrial
Average) fell by 90% (from around 400
to around 40). It took 25 years (about 1905-1929) to get from
40 to 400, and it took around 25 years (1933-1955) to get from the 1933
low of around 40 back up to the 1929 high around 400.
We are right on track to repeat that
storyline.
The DJIA is hovering around 8,000, which is just above 50% of the value
of
16 months ago. If this depression followed the pattern
established in 1929, then it would halve again in the next 12 months to
somewhere around 4000, and halve again to bottom out somewhere around
2,000 by January 2011. It would then take around 25 years to
again reach 15,000.
Economics, like Psychology, is not a science. In Engineering, one
can design a bridge, and know with 99.99% certainty that, barring an
earthquake or similar act of God, it will support any load that is
applied, so long as that load is within designed specifications.
Historians argue as to whether the course of history follows a
predictable pattern, or whether single men can change the course of
history. Alexander the Great is an oft quoted example. Was
he a "great" conqueror utilizing an army provided by his father's
enlightened policies, or were his victories due to an historical
progression of forces including the moral decay of the Persian
empire?
In our modern era, are the Israelis prevailing
against the Muslim Umma because they have a more vigorous culture, or
is Arab control of oil all that keeps dead issues smelly? As
evidence for the oil money argument, why are imaginary Jewish
"atrocities" (eg "bombing of UN school in Gaza") widely published,
while even more horrendous Muslim atrocities (e.g. Hamas actions
against PLO
members after the Hamas takeover of Gaza) rarely if ever make it into
the Western dailys?
Or perhaps the answers to some questions in Psychology and Economics
are
formally undecidable? Like asking whether a photon is a wave or a
particle? Or Heisenberg?
Consider the causes of the current
recession.
The most elegant explanation I have seen for "single person causation"
of the current economic was that the seeds were planted around 15 years
ago, when president Clinton enacted directives (including repeal of
parts of Glass Steagall) that required or allowed financial
institutions to give
disadvantaged people (e.g. african-americans) access to cheaper credit
for housing purchases than then banking fiduciary policy
allowed.
That widening of the homeowning population had the predictable effect
of
creating a greater demand for housing and for housing credit, and a
consequent
rise in real
estate values. Wall street did it's thing, & found ways to
fulfill those credit requirements. (Those "greedy" financiers
would
not
have existed if the demand for credit had not been so high due to
legislative action.)
Those
mortgages would not have been unsafe if legislation had not forced
banks to give uncreditworthy customers access to cheap loans.
On the other hand, Kondratieff wave
theory predicts a major recession occurs approximately every 40 or
80 years. (1929, 1969, 2008) A common explanation is
that the generation (i.e. after 40 years) that has not experienced the
excesses that led to the last recession, permit those conditions to
recur. So Bill Clinton was not really responsible for the current
world recession, because he could only
have enacted that legislation in a world that had forgotten
depressions. Or if he had not done the deed, then some other
person would have done an equivalent thing. For instance,
in Australia, Paul Keating's compulsory superannuation legislation
had a similar effect because it created a large pile of capital looking
in a diminishing pot for
investment grade targets.
Which leads us to the question of a
solution.
Economists are divided on what solution to apply. There are many
schools, and so policymakers can find "sound" theoretical advice for
whatever policies they find most advantageous to their
constituency.
Since the November 2007 federal election the elitist party of the
unions
has been in power in Australia, and in the US the elitist Democrats
(unions again) control
the White House and the legislature. If you belong to one
of the
"important" unions, (aka "Hard Working Australian") such as
Lawyers, Doctors CFMEU, Journalists, Teachers, Nurses, PSU, or are a
"core" unionized worker for
Big Business, (Supermarkets, Banking, Auto
Industry etc) then you will manage the depression with (at most) minor
problems. The conservative parties (Republicans,
Liberal-Nationals in
Oz) who represent small business (farming, retail, manufacturing,
tourism up to ~$500 million) and their employees have been consigned to
the opposition benches.
The Liberal US government (Obama) plans to spend $US800 billion on
saving
US
banks.
There is talk that he proposes to create federal owned banks in which
they will
concentrate all the "bad" loans (Hence "Bad Bank".) Given
their druthers, the Democrats (the ALP in OZ) would nationalize
all
the big corporations and turn them into state monopolies. That
way their union supporters could always have well paid jobs. If
you want an example of such union driven liberal government, look no
further
than France. High
unemployment, but if you manage to get a job, dream working conditions
& perks.
Rudd apparently hopes thereby to keep our banks
solvent by maintaining
prices of real estate, and industry solvent by
financial support & restricting/taxing imports. An example
of existing legislation that exemplifies the liberal (i.e.ALP)
political agenda
in Australia is
the mosaic of development control plans that give Westfield and their
ilk a virtual monopoly on shopping malls, and prevents low cost small
retailers from competing and driving down prices (e.g.Aldi, Wal-Mart)
except in "approved" premises. Another
example is the "Big Four" banking policy, whereby only four banks
were favoured by legislation, permitting a quadopoly situation (and
uncompetitive behaviour) to arise.
The Republicans (LCP in Australia) are for small business. Farms,
small retail, small industry, tourism, foreign labour. They
would destroy union power,
create a lassaize faire
economy with no inbuilt advantages to big corporates. (like those
enjoyed by Banks, Malls, Infrastructure etc). They believe that
Free Markets optimize productivity to
the greatest benefit of everybody.
Unfortunately, both parties love big business especially financial
institutions, because they (and their employees) are so easy to
tax, and also pay huge bribes. Big
Corporations are fat milch cows for government, as opposed to small
businesses, which are very nearly impossible to tax with the current
tax
system.
Barvennon's wishlist of OZ reform.
- Abandon the bank deposit guarantee, instead establish federal M0
+ M1 accounts for all Australians, tied to citizenship (a voluntary
"Australia Card".. These accounts would pay the current central
bank interest rate. They would only exist online, and agencies
would be licensed for any shopfront service necessary.
Until the current instability passes, banks could then borrow that
money from the Federal Government. This would guarantee financial
transactions & stop favouring the oligopoly "big 4" banks. It
might well send some of them bankrupt.
- Gradually abandon personal & corporate income tax and GST,
and shift revenue collection to resource taxes. (Higher land tax,
electromagnetic spectrum tax, minerals tax). This would have the
beneficial effect of lowering property prices.
- Gradually expand social security by offering "negative income
tax". This would be paid for by reducing the education and health
budgets.This has the beneficial outcome of "not paying people to not
work".
- Reform secondary and tertiary education so that the government
involvement is limited to offering uniform, Australia wide
certification exams in the various
subjects and disciplines. The process of education should be
totally privatized and would be paid (perhaps by voucher?) from each
child's
"negative income tax".
- Introduce a "Schwartzenegger" amendment into the constitution,
that would allow citizens to dismiss the government or amend
legislation.
- Wind back all legislation that favours large corporations over
small businesses. Let local government develop their own LEPs.
(Local environment policies) and permit shops anywhere that they want,
or prevent development if they want. (like the Brewery site in
Sydney).
This is an incomplete article, and will be expanded further.
MAIL
comments