GQ Get it Wrong

Obama a leader? Ben Bernanke our Saviour? The Hangover Guys funny?

I may be old, but it seems not old enough yet to get GQ. I mean I agree that Clint Eastwood is a manly icon. But the suggestion that Ben Bernanke has been preparing his whole life for the GFC was ludicrous. Ben Bernanke may be a saviour, but it is of the system that generates catastrophes like the GFC.

Physicists may have spent the better part of a century arguing that light was a particle or a wave (since it behaves in part like both) and may have no idea how Gravity actually works, but you'll notice they never seem to get spectacularly caught out by the whole system of physics collapsing.

There has been no 'Global Falling Up Crisis' though one may argue that there is debate about Climate Change - but the thing is that 95% of climate change scientists are arguing 'Climate Change is Real' and the other 5% are arguing 'I'm not sure'. Perhaps a better illustration is the Cern Large Hadron Collider, of which many a newspaper were quite willing to give airplay to sensationalist claims that the LHC would bring about the end of the world.

In the same month the LHC was tested, the entire world financial system collapsed into a credit crunch. Yet remarkably few media commentators are still willing to give airplay to the notion that mainstream economists have no fucking idea what they are talking about.

Economics is a science, or supposed to be, thus any 'theories' it has should be testable, empirically testable, peer reviewable and should conform to observation. For example, that 'debt is rational and therefore irrelevant' is a theory that fails observation. People have proved time and time again their willingness to go into debt to buy something at a price far greater than its intrinsic worth.

Neoclassical economics says (and I paraphrase) 'People are rational profit maximisers. Interest rates indicate confidence. If the interest rate is high (10%) then only somebody with great confidence would rationally take on the loan. Thus you can assume as lender that the borrower has a rational expectation that they will make at least a 10.01% return on their investment. Likewise the reverse is also true, if a bank lends at a high level of confidence (3%) then the bank is confident in your ability to repay the loan.' and so fourth, which seems neat and tidy, because its basically saying there's a confidence equilibrium that makes debt rational and thus we can be confident enough in debt to ignore it.

But an economist like Michael Hudson would point out that 'A house is worth as much as a bank is willing to lend' something a bank does so that they can consume the entire intrinsic value a house (and land) produces. That is to say, they can eat all the rent via interest, and probably get their hand into your wages as well. Which causes somebody like Peter Schiff to say 'people don't "own" houses, they rent them from the banks'. Donald Trump a non economist says 'A man is worth as much as he can borrow' which means for Donald Trump that he is basically as wealthy as the banks allow him to be. The wondrous question is why they continue to allow him to be so.

Ben Bernanke subscribes to a bunch of theories that have been disproven by empirical observation. Like for example his decision to give US Congress's bailout money to the banks, based on the neoclassical expectation that if you give $1 to a consumer they use it to pay down debt (giving you $1 for $1) whereas if you give it to a bank they will use it to loan more money (giving you in the US's case $47 for $1) thus to increase the money supply and stimulate the economy the US gave a couple of trillion to the US banks, and they... sat on it, not increasing the cash supply or flow of money at all.

Empirically they could have observed that banks follow consumers, consumers don't follow banks. In other words, the Federal Reserve got it backwards. You can get the specifics here.

But the other thing I don't have my head around, is that if interest rates represent confidence, why then the 'Greenspan Punt' which Ben Bernanke is a devotee of. That is in times of recession, lower the interest rates. Which is to say, in the exact moment you have the least confidence in the market, reserve banks and central banks express greater confidence in consumers to achieve returns.

Instead of saying 'the market is tough out their, we only want to lend money to the extremely self assured, time to run the interest rate up into double digits' which would mean only the businesses that can achieve returns of 10%+ could confidently borrow money, most people would be scared off making the irrational investments in property, or at the very least would be given pause for thought to consider just how an empty house can generate $20,000 a year or more when it does nothing, for anybody at all.

Yes instead they say 'we need to lure in the least confident people in the market to make uninformed investment decisions in our time of need!'

Debt deflation explains phenomena like the GFC and indeed make it predictable, Keynes did much to introduce the concept of short-run profit maximisation vs. long run (which is why people act irrationally compared to their long term interests), Henry George explained the economic cycle as a simple market mechanism (the ability to speculate on land) and so fourth. Yet people who actually observe and prove things about economics scientifically must be prevented from having their findings taught and their disciples having any input on the economy.

Why? I don't believe in the wealthy banker conspiracy. I think it is just politicised, and by that I mean that moral conduct has no universal application, and by that I mean the system lacks anarchy, a colonial mentality that persists today. One that says 'people on this side of the line are our team, we should look after them. Over on that side of the line, we don't have to worry about them, they aren't on the team and if we can increase our teams welfare at their expense all the better.' which was British Colonialism.

Gordon Brown attempted on Ted to reconcile 'National Interests' or patriotism with 'Global Agendas' like climate change. We must presume he failed. I didn't watch his talk because I can't imagine Gordon Brown being the person to listen to on the subject.

Anyway, I guess the moral of the story is. Don't get your economic advice from GQ.