Thursday, January 15, 2015

The *New* Economy: Unthinkable Life After Shopping Sprees

EconoDunces will have no clue what to do next when this all implodes
Therefore, while we wait for this all to implode with extreme dislocation, it's worth pointing out that there are several competing "schools" of economic thought right now, none of whom have a fucking clue what to do next, so I figured we could at least give them a hint.
Suffice to say that nothing can get better until the Idiocracy weans itself off of denialistic bullshit spewed by serial liars...

1) Neo-Keynesians: Government borrowing to the max
This school of thought believes that the "economy" consists of a government borrowing as much money as possible to offset the lack of demand from the private sector. All underlying economic issues can be solved with enough Ponzi borrowing. They hijacked Keynes' theory of using counter-cyclical fiscal policy to stabilize the economy during recessions (and running surpluses during expansion) and instead prescribed borrowing as much money as possible at all times. Bush ran deficits throughout his entire eight year term i.e. to pay for tax cuts for RomneyBots, military blunders and other trinkets. 

2) Monetarists: Everyone borrowing to the max
Monetarists believe that low interest rates are the key to prosperity. Because low interest rates allow EVERYONE to borrow as much money as possible. Regardless of what the money is used for, how it will be paid back, when it will be paid back, if it will be paid back - it's all good. Keynesian and Monetary Theorists used to be campus enemies, but now of course they are best of friends, because low interest rates allow governments to borrow us into oblivion.

3) The Austrian School: Sound money solves all problems
This school of theory advocates minimal government intervention in the economy and no monetary Central Bank. It is the ultimate laissez-faire approach to economics. Nevertheless, this school of thought is in total denial about Globalization and the impacts of Third World deflation on the developed world middle class. They have no way of explaining, for example, why Chile which has the most pro-business economy in the entire world, is still basically a Third World country. They also can't explain why low wages across the Third World creates a poverty trap causing people to work more not less. In a world in which half of humanity lives on $2.50/day, then the marginal cost of labour is $2.50 per day. Econ 101. Only until these people experience some of their own medicine and the poverty trap firsthand, will they start to rethink how we raise living standards for everyone.

The true answer of course does not lie in slavish devotion to ideology but a pragmatic cross-section of ideas: 

1) Use government borrowing solely on a COUNTER-CYCLICAL basis to alleviate extreme poverty i.e. not to indulge NeoCon fantasies.

2) Use Monetary policy solely to make capital readily available and affordable to businesses for investment in the REAL economy - no special dividends and stock buybacks. Consumption capital should not be subsidized, ever. Speculation capital should not be subsidized, ever. Gold standard? Not necessary. Statutory limits on fiat money expansion: Critical. 

3) Stop trading "freely" with nations that have no environmental or labour standards. Via arbitrage, multinationals will sell in one market and buy in another, until everyone is bankrupt. 

4) Reform the education system to focus primarily upon job readiness and skills attainment as opposed to rote memorization and learning of pointless facts. Universities - handing out irrelevant degrees - should not be a gateway to the job market.

5) Stand back and let real people "run" the economy. Government meddling can only fuck things up until everything implodes with extreme dislocation.

We can assume up front that the politicians will be highly reluctant to adopt any part of the commonsense economic plan, because it's against their Special Interests to do so. And because they have no commonsense in the first place. Economics being inherently political.

Therefore, the first order of business is to monkey hammer the Idiocracy into oblivion, to instill a keen interest in honesty and break their addiction to recurring bullshit.