Sunday, January 9, 2011

Is Economics Waking Up?

This week's missive is a collection of quotes from a brace of German economists, as well as Rob Parenteau, a political economist and editor of The Richenbächer Letter, as well as Yves Smith, whose "Econned" contains the Parenteau quote I use.

I think it plain that economics having a — what seems to be deliberate — blind spot in the area of money, is akin to physics refusing to study force, or biology refusing to study blood circulation and its effects. Again and again I find that people simply do not know how money is created. Pointing it out to them, even in the midst of a deep financial crisis many are calling the worst in history, results in angry incredulity. They have a deep sense of money 'just being there,' almost as if created by God, to be the wealth we are rewarded with for our work. This is such a deep assumption one can only marvel at how brilliantly those who benefit from it have seeded it throughout the world.

Uprooting it takes effort. When I first watched Money as Debt, then Zeitgeist Addendum, it took me a further year of reading, discussing, writing and pondering, finally to get how the debt-money system works as an inverse Robin Hood Vacccum Cleaner, stealthily sucking money up from the poorer towards the richer. Bernd Senf says the effect is exponential, perpetually increasing in speed and intensity. To ignore this is to ignore the very roots of injustice.

Of similar importance and of particular interest to me are the assumptions that underpin economic theory. Prof. Götz Werner is very eloquent in this area.

On to the quotes.

Yves Smith: Orthodox economics is peculiarly silent on the subject of banking and finance. Neoclassical models do not even assume the existence of money; they simple postulate a barter system. Macroeconomics, the study of the operations of the economy as a whole, has a similar blind spot here.

Rob Parenteau: General equilibrium theory, the intellectual pinnacle of the profession, has no room for money. Real business cycle theory has no room for finance—negative shocks to productivity, virtually from out of the blue, are the stated source of recessions. The Taylor rule, which essentially guides central bank policy rate setting, has an interest rate but no room for either money or finance, unless it is packed away in the error terms of the canonical equations. Recently, the Henry Kaufman Professor of Financial Institutions at Columbia University and his co-authors concluded the US housing bubble had little effect on consumer spending patterns. Huh?”
Econned, pp203-4

Bernd Senf: When my generation were children we asked, “Where do babies come from?” and got the answer, “From the stork.” Since those times there's clearer information on this topic available to children, thank goodness. Regarding the question, “Where does money come from?” (should the question be asked at all) a large part of the population are still positioned firmly in the fairy tale of the stork. And even economists offer little by way of an explanation of the basics.

Strangely, these matters and points which I have just mentioned [the dynamics of interest rates and money creation by central and private banks], are hardly ever a subject of public discussion, and also do not take place in economics discussion generally. Students of economics learn nothing of any thoroughness in this area.
Source (YouTube, around minutes 3 to 4 (German))

Prof. Götz Werner: The economy does not have the role of creating jobs. On the contrary. The role of the economy is to free people from jobs. And that is precisely what we have managed to do wonderfully well over the last 50 years. [snip]

No businessman wakes up in the morning wondering how to stuff more employees into his business. The very idea is absurd. The question should be asked the other way around: How can I, with as little effort and as few resources as possible do as much for the customer as I possibly can? How can I better organize my business? And better organized always means: minimize work. This is a foundational business principle. [snip]

Indeed a fisherman told me that Icelanders today, thanks to factory-ships, can catch four times as much fish with four times fewer fishermen than 30 years ago. Do you see? 75 percent of people are simply no longer needed. There are such examples everywhere. Our ability to produce things exceeds our need to consume them. This is a simple fact, and no job market reform can change that. [snip]

We really have to ask ourselves: What is the real role of the economy? There are two. The first: It must supply people with goods and services. Never in history has the economy fulfilled this role as well as today. In fact we see a massive oversupply. Even though most factories are by far under-utilized, we can produce everything we can desire. [snip]

We're moving into a society in which jobs are disappearing. The simple question is what all these people are to do with all their time, which is a cultural question. The problem we have does not lie in the jobs market, but in the culture. Sadly, this subject is barely visible in society today. And yet it is precisely here that we have work to do.
Taken from an interview in the Stuttgarter Zeitung, 02 July 2005.

Prof. G. W. Werner / Dr. L. P. Häussner: Our social awareness is lagging a long way behind the possibilities opened up by the worldwide division of labour and the resulting rise in productivity. [snip]

The dictum that technological progress and productivity increases create and destroy jobs in equal measure no longer applies today, and large sections of the population will become poor if we do not put earned incomes, which are diminishing because less and less labour is required to produce goods, on a new footing. As Goethe put it in Faust, "We are starving in abundance".
Source: "The unconditional basic income - from an industrial to a culture-based society"

Professor Götz Werner's words speak for themselves.

Werner is a rare economist who is also a very successful businessman. He owns and founded Germany's most successful chemists (“dm dorgerie”), a chain with hundreds of outlets across Europe and a 2008/9 turnover of 5.2bn Euro, and receiver of multiple awards. Since he founded the business in 1973, its focus has been on minimizing environmental impact and maximizing sustainability. One of his current ambitions is to introduce a guaranteed income, a reform which would include scrapping all taxes except for a sales tax, which he estimates could go as high as 48%. I never agree with anyone on everything, but find his honesty, plus his combination of academic acumen and deep success in the real economy, gives his words a particular gravitas. I have yet to see him mention monetary reform, which Bernd Senf calls for. Prof. Senf is co-founder of an initiative in Germany to reform the money system ("Monetative") along similar lines to those proposed by The American Monetary Institute, including 100% reserve banking.

The more I look, the more German economists and other academics I find who, at least taken together, are building a set of proposals which would put society on a path pointed quite accurately towards a resource-based economics, an economics which places the reality of the environment and human needs above the medium of exchange, whatever that might be. I have a strong suspicion there are other European countries hosting similarly minded economists. Any pointers would be very welcome (though I can only speak German!).

(All translations by me.)

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