In the last few days I’ve repeatedly stumbled on what I originally thought was a rare phenomenon: the closet Fianna Fáil (FF) voter and the addiction that holds them to a party whose recent actions they profess to despise.
But before I get into it properly, I feel I should give you two things.
One, the definition of addiction upon which my premise is based, namely that it is the ‘continued involvement with a substance or activity despite the negative consequences associated with it.’ And two, my premise, that there exists a serious addiction to FF among a certain generation which blinds them to the negative long-term effects of their short-term voting decision.
The idea for this post started last Saturday when a friend of mine confessed that his mother was intending to vote FF almost purely because of Michael Martin’s election as leader of the party. She had been “waiting for an excuse” to get back on the FF band-wagon
Another gentleman I met, let’s call him ‘dad’, had a similar problem. He couldn’t see a way to not vote for FF. He originally rationalised this as a negative choice (the other parties suck so much that FF is the only way to go). But considering the similarities between Irish political parties (the usual complaint) that doesn’t really seem sufficient.
Furthermore, he knew that FF, level of complicity aside, was in some way responsible for the present state of Ireland’s economy. An unemployment rate of 13%, a fall in GDP of 7 per cent in 2009 alone and a IMF/ EU straightjacket around us all being the kind of things a government really has to take some responsibility for. Whether or not the bank guarantee would have been foisted upon us by any other administration is a moot point.
So should some element of moral hazard not be exercised as a future deterrent?
Apparently not. ‘Dad’ couldn’t see fit to punish them for their past mistakes and argued for a ‘we are where we are’ form of voting. He wants to ignore a party’s immediate history in favour of current policies- policies which are designed to push this exact mindset (FF know they won’t get into power so their manifesto-see here- is mostly bluster aimed at capturing a few undecided heads).
With each incidence of FF-love I came across (and there were others) I became less sure of the rarity of these strange beasts and more concerned about FF’s chances of getting into the middle to high 20s come polling day (their currently polling at around 15%- see here)
This seems a perfect example of addiction. Draw a parallel with a cigarette smoker if you will. For them, every cigarette smoked is the process of an internal cost-benefit calculation and the short-term hit usually ends up winning. There is little physical addiction and most of the need (past about a three day threshold) is scenario driven- the smoker must accept a different lifestyle now in exchange for his long-term benefit.
The creature of habit is forced to into short-term sacrifices for a benefit that is pretty darn impossible to grasp.
And so it is in politics, a vote for Fine Gael or Labour guarantees nothing. All that is on the table is rhetoric. Campaign promises do not sureties give and anyone who lived through the 1980’s must take promises of economic revival with large measures of salt. FF is the devil we know and, as has been seen before, loyalty can overcome many obstacles.
That is the nub of the problem. For all of the catastrophe that FF drew down upon us there is no doubt that Ireland has boomed under them as it has under no other party. The reasons for this are manifold and include coincidence and chimera. But the perception is very real. FF succeeded where FG and coalitions could not and their current mid-teen polling figures may hide a fair bit of support.
There have been hidden Tories in the past (the 1992 Westminster election when "final polls were out by over 8 percentage points, underestimating the Conservative vote by 4 per cent, overestimating Labour support by a similar amount, and thus failing to forecast the Tory victory"- full article here) and if the Bradley effect existed (it does not- see here), it would be a handy way to parallel this article.
No matter. The proof will be in the voting and anyone out there hiding their FF colours will have to come out of the closet at some stage.
Monday, February 14, 2011
Sunday, February 6, 2011
Great article on Keyne's General Theory on Bloomberg from the good people at Primeeconomics. They argue that “bastard Keynesianism,” as British economist Joan Robinson called it, subverted and continues to block the Keynesian revolution both in vision and in method. Monetarists were concerned with the quantity of money. Keynes’s overwhelming concern was with the rate of interest on money. He argued that monetary policy should always support the private and public economy, stimulate it, and prevent recession.
Bloomberg article-
Never has a book on economics been so anticipated. John Maynard Keynes’s “The General Theory of Employment, Interest and Money” was published 75 years ago today. Back then, there were queues outside the Economists’ Bookshop in Houghton Street, London. Opening hours had to be extended to deal with the rush of those eager for an alternative to policies that had ruined the global economy.
The impact on the field of economics wasn’t unlike that on the scientific community when Charles Darwin published “On the Origin of Species” in 1859. Just as with Darwin’s book, Keynes’s shook the foundations of economic orthodoxy and had profound effects on his profession. The main thrust of Keynes’s work was also met with outright denial from his peers, including close colleagues, who reduced his theory to what one described as “diagrams and bits of algebra.” Above all, they denied the centrality of his theory of the rate of interest.
This “bastard Keynesianism,” as British economist Joan Robinson called it, subverted and continues to block the Keynesian revolution both in vision and in method. Monetarists were concerned with the quantity of money. Keynes’s overwhelming concern was with the rate of interest on money. He argued that monetary policy should always support the private and public economy, stimulate it, and prevent recession.
Safe and Risky
The centerpiece of his policy prescription was to sustain low rates of interest across the spectrum of loans: short- and long-term, real, safe and risky. Countering determined efforts to undermine these policy goals, Keynes used his position at the Treasury and the Bank of England, and his influence with U.S. President Franklin D. Roosevelt, to make this vision a reality. Interest rates were forced down from 1932; the bank rate was set at 2 percent until 1951.
To achieve this goal, which he argued was essential to sustained investment, growth and full employment, Keynes rejected the liberal-finance model based on deregulated international-capital flows. Instead he constructed a managed- finance model relying on domestic credit and restricted flows of international capital. From the end of the World War II until the 1970s, finance was managed, and low rates of interest prevailed. But with the celebrated move to free markets, this approach to finance was also rejected.
‘Golden Age’
For the 30 years since 1980, policy has supported liberalized, deregulated credit creation and capital flows. Since the Golden Age of 1950 until 1973, the borrowing costs for U.S. and U.K. businesses, adjusted for inflation, have doubled to about 6 percent, according to data assembled by Geoff Tily, author of the 2010 book “Keynes Betrayed.”
Under liberalization, high rates of interest have been accompanied by the unsustainable growth of credit. This led to a series of excessive expansions and debt inflations and then severe contractions and debt deflations, beginning on the periphery of the global economy before spreading to Japan and South East Asia.
The contrast between the Golden Age and the Age of Liberal Finance has at root this upward shift in the rate of interest. In the U.K., unemployment averaged about 2.5 percent in the Golden Age and close to 8 percent afterwards. Economic growth in the U.K. and the U.S. averaged 0.5 percent higher per year during the Golden Age than in the liberal-finance era, according to their respective National Accounts authorities.
Economists Stray
The global economy was finally ruined in 2007-09 as the financial system in the U.S. and Europe imploded under the weight of accumulated private debt. Subprime borrowers were the first to buckle under the weight of “dear money” -- costly, unpayable debts. The widespread belief that it was low interest rates that caused the credit crisis is indicative of how far economists have strayed from Keynes’s theory and analysis.
Equally, the idea that interest rates are now substantially lower, stems from a focus on policy rates while the high, real rates paid by consumers and businesses are ignored. To reduce real rates of interest for both industry and consumers requires the full embrace of Keynes’s approach to the global system: a coordinated effort to reverse financial liberalization.
Only with finance restrained can there be prospects for public and private-sector expansion. Keynes’s “General Theory” -- not the “Keynesian” theory of textbooks and conventional wisdom -- offers the same way out of today’s crisis as it did in the 1930s. But the economics profession must begin a reappraisal of his central contribution to monetary theory.
And just as with “On the Origin of Species,” society must reconsider conventional wisdom and reconcile itself to the extent and scope of Keynes’s vision.
(Victoria Chick is emeritus professor of economics at University College London and a co-founder of Prime -- Policy Research in Macroeconomics. Ann Pettifor is a director of Prime and co-author of “The Economic Consequences of Mr. Osborne.” The opinions expressed are their own.)
Bloomberg article-
Never has a book on economics been so anticipated. John Maynard Keynes’s “The General Theory of Employment, Interest and Money” was published 75 years ago today. Back then, there were queues outside the Economists’ Bookshop in Houghton Street, London. Opening hours had to be extended to deal with the rush of those eager for an alternative to policies that had ruined the global economy.
The impact on the field of economics wasn’t unlike that on the scientific community when Charles Darwin published “On the Origin of Species” in 1859. Just as with Darwin’s book, Keynes’s shook the foundations of economic orthodoxy and had profound effects on his profession. The main thrust of Keynes’s work was also met with outright denial from his peers, including close colleagues, who reduced his theory to what one described as “diagrams and bits of algebra.” Above all, they denied the centrality of his theory of the rate of interest.
This “bastard Keynesianism,” as British economist Joan Robinson called it, subverted and continues to block the Keynesian revolution both in vision and in method. Monetarists were concerned with the quantity of money. Keynes’s overwhelming concern was with the rate of interest on money. He argued that monetary policy should always support the private and public economy, stimulate it, and prevent recession.
Safe and Risky
The centerpiece of his policy prescription was to sustain low rates of interest across the spectrum of loans: short- and long-term, real, safe and risky. Countering determined efforts to undermine these policy goals, Keynes used his position at the Treasury and the Bank of England, and his influence with U.S. President Franklin D. Roosevelt, to make this vision a reality. Interest rates were forced down from 1932; the bank rate was set at 2 percent until 1951.
To achieve this goal, which he argued was essential to sustained investment, growth and full employment, Keynes rejected the liberal-finance model based on deregulated international-capital flows. Instead he constructed a managed- finance model relying on domestic credit and restricted flows of international capital. From the end of the World War II until the 1970s, finance was managed, and low rates of interest prevailed. But with the celebrated move to free markets, this approach to finance was also rejected.
‘Golden Age’
For the 30 years since 1980, policy has supported liberalized, deregulated credit creation and capital flows. Since the Golden Age of 1950 until 1973, the borrowing costs for U.S. and U.K. businesses, adjusted for inflation, have doubled to about 6 percent, according to data assembled by Geoff Tily, author of the 2010 book “Keynes Betrayed.”
Under liberalization, high rates of interest have been accompanied by the unsustainable growth of credit. This led to a series of excessive expansions and debt inflations and then severe contractions and debt deflations, beginning on the periphery of the global economy before spreading to Japan and South East Asia.
The contrast between the Golden Age and the Age of Liberal Finance has at root this upward shift in the rate of interest. In the U.K., unemployment averaged about 2.5 percent in the Golden Age and close to 8 percent afterwards. Economic growth in the U.K. and the U.S. averaged 0.5 percent higher per year during the Golden Age than in the liberal-finance era, according to their respective National Accounts authorities.
Economists Stray
The global economy was finally ruined in 2007-09 as the financial system in the U.S. and Europe imploded under the weight of accumulated private debt. Subprime borrowers were the first to buckle under the weight of “dear money” -- costly, unpayable debts. The widespread belief that it was low interest rates that caused the credit crisis is indicative of how far economists have strayed from Keynes’s theory and analysis.
Equally, the idea that interest rates are now substantially lower, stems from a focus on policy rates while the high, real rates paid by consumers and businesses are ignored. To reduce real rates of interest for both industry and consumers requires the full embrace of Keynes’s approach to the global system: a coordinated effort to reverse financial liberalization.
Only with finance restrained can there be prospects for public and private-sector expansion. Keynes’s “General Theory” -- not the “Keynesian” theory of textbooks and conventional wisdom -- offers the same way out of today’s crisis as it did in the 1930s. But the economics profession must begin a reappraisal of his central contribution to monetary theory.
And just as with “On the Origin of Species,” society must reconsider conventional wisdom and reconcile itself to the extent and scope of Keynes’s vision.
(Victoria Chick is emeritus professor of economics at University College London and a co-founder of Prime -- Policy Research in Macroeconomics. Ann Pettifor is a director of Prime and co-author of “The Economic Consequences of Mr. Osborne.” The opinions expressed are their own.)
The Financial Crisis of 2015 - An Avoidable History
From asymptotix.eu
"For all the rhetoric about a new financial order and improvements made since the start of the financial crisis in 2008, many risks remain and it would take little to create a fresh crisis, consultancy Oliver Wyman said in a report released Wednesday at the World Economic Forum in Davos. The report "The Financial Crisis of 2015: An Avoidable History" looks at a hypothetical bankruptcy of a bank in 2015 and tries to piece together shortcomings in the banking system in the four years leading to the collapse.
The consultancy said the report uses the hypothetical scenario to stress-test the design of the current financial system, and concludes that many risks that were present before and during the financial crisis remain. The basic regulatory framework which existed before the crisis, featuring bank-debtor guarantees and minimum levels of bank liquidity and capital, has been maintained with "tweaked parameters," the consultancy said. And bank shareholders, bondholders and executives still have incentives that might herd them towards excessive risk-taking, it adds."
"For all the rhetoric about a new financial order and improvements made since the start of the financial crisis in 2008, many risks remain and it would take little to create a fresh crisis, consultancy Oliver Wyman said in a report released Wednesday at the World Economic Forum in Davos. The report "The Financial Crisis of 2015: An Avoidable History" looks at a hypothetical bankruptcy of a bank in 2015 and tries to piece together shortcomings in the banking system in the four years leading to the collapse.
The consultancy said the report uses the hypothetical scenario to stress-test the design of the current financial system, and concludes that many risks that were present before and during the financial crisis remain. The basic regulatory framework which existed before the crisis, featuring bank-debtor guarantees and minimum levels of bank liquidity and capital, has been maintained with "tweaked parameters," the consultancy said. And bank shareholders, bondholders and executives still have incentives that might herd them towards excessive risk-taking, it adds."
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