back to article THE DEATH OF ECONOMICS: Aircraft design vs flat-lining financial models

John Watkinson continues his series of essays for El Reg in which he examines failures in society from banking and education to transport and IT. Here, with a critical eye on our economic plight, he looks at the methods employed by those doing the sums and their consequences. Here we are, several years into the aftermath of …

  1. Anonymous Coward
    Anonymous Coward

    "This is a sentence not taught in the schools" - T S Eliot

    It is no good teaching economics in schools, because the profession of economist, having been politicised for much of the 20th century, has now been farmed out to the same banks that drive the system. Economists are not supposed to analyse and criticise the "free market economy", they are supposed to cheerlead it, in exchange for which they get paid multiples of academic salaries. It is no good learning sound economic facts at school if, the moment they get to university, would be economists start training to be PR consultants for the status quo.

    As for the little Eliot quote in my title, the sentence referred to is "Kings are sent by God, chancellor richly rules." And that is part of the problem. Politicians depend on income from donations, and can also pass laws that enrich themselves (like buy for let legislation, from which a number of them like Blair and Blunkett have profited.) They don't care if the system is broken so long as they are all right,and they can load the dice so that they are.

    In corrupt Russia, the Duma is currently reviewing a law which will fund political parties based on their votes, and ban donations and lobbying. It may be complete window dressing, but the idea is sound.

    1. JeffyPoooh Silver badge
      Pint

      Corporations paying zero tax, a solution?

      When corporations export their profits, they import (not really) something to balance their books. Typically they import (not really) Intellectual Property such as rights to use a trademark, or they import (not really) Management Services.

      Track down these imports (not really), and slap an Import Duty on them (really!).

      Start slow, maybe 1%, so nobody panics. Ramp it up to the Corporate income tax rate.

      Seems like a solution to exported profits with zero tax.

      A billion here and a billion there might help to solve a few problems.

      1. Zolko

        Re: Corporations paying zero tax, a solution?

        "Track down these imports (not really), and slap an Import Duty on them (really!)"

        it's actually very easy: a tax on financial transactions. Make this tax tiny when the transaction is with a "friendly" partner, make it HUGE when dealing with a tax heaven.

        The problem you're mentioning is not technical, it's political: the overlords (= banks) don't want this, therefore the politicians and journalists (= the mercenaries) don't do it, only talk and talk and talk about it.

        1. LucreLout Silver badge

          Re: Corporations paying zero tax, a solution?

          "it's actually very easy: a tax on financial transactions"

          Actually, it isn't very easy at all.

          You might capture a tax on a transaction between the UK and say, Delaware, but once that money has left the UK, it will never return. Why would it? It's now free to be used for transactions, legitimate or otherwise, entirely unfettered by the dead hand of the state or further taxation.

          In reality, your proposal just beggars the nation that introduces it first, and as such is wholly unworkable. It might appeal to those such as the author, who by parroting the lie that "banks exist to increase debt" ad nauseam, is looking for just such support for his barmy ideas about how economies work or what they exist to achieve.

          1. Zolko

            Re: Corporations paying zero tax, a solution?

            "once that money has left the UK, it will never return. Why would it?"

            you're talking about a different problem: multinational corporations can avoid paying taxes on real and legitimate businesses by artificially locating the profits in tax heavens. What's happening is that in the real place real people are paid with real money doing real stuff, that stuff is sold at 0 profit to a sister corporation located in a tax heaven, which resells said stuff to the real place with a huge margin, and that stuff is then sold to real people in the real world for real money with 0 profit: all the profit is made in the tax heaven, but absolutely no real work is done there.

            But since the real business is still done in real places, the real money is still needed in the real place. So the money would return to the UK to pay people doing the job and to buy stuff. And as soon as the money leaves the tax-heaven to be used for something (like buying a Porsche or a Rolex) it's taxed.

            1. LucreLout Silver badge

              Re: Corporations paying zero tax, a solution?

              "you're talking about a different problem"

              No I'm not. The situation you describe being transfer pricing, which is nought to do with capital flight, which is what will happen with any tobin tax.

              "And as soon as the money leaves the tax-heaven to be used for something (like buying a Porsche or a Rolex) it's taxed."

              It isn't. It really isn't.

              You get one hit of the tax bong when the capital leaves. Let's call it a £1M transaction to keep the numbers small and easy. You tax that at 1% so you get £10k, and the transaction stands are a net £990k.

              The capital from the transaction is now offshore and away from your sticky mits. You now get £0 on the £100M+ of transactions I use it for. You never get to tax any of those transactions or the vast bulk of the profits.

              If I repatriate a small slice of the profit, you might get to tax that.... then again, you might not. I'd just buy the Rolex abroad and wear it home.

              All you've really achieved is to drive the vast bulk of financial transactions offshore, driven taxes on profits and dividends through the floor, and offshored a lot of bank workers job. As a spite tax, it works very well indeed, but economically, it is nothing short of an absolute disaaster.

              1. Zolko

                Re: Corporations paying zero tax, a solution?

                "Let's call it a £1M transaction to keep the numbers small and easy. You tax that at 1%."

                ok, lets. Why would I tax it to 1% ? If this money goes to a "friendly" place, I might indeed tax it at 1%, or even 0.1%, but if it's going to a place where I know you're going to leverage 100:1 and do HFT that destroys my economy, you can bet I won't let you get away that cheap. Let's rather talk about a 30% tax here.

                "If I repatriate a small slice of the profit, you might get to tax that.... then again, you might not. I'd just buy the Rolex abroad and wear it home.

                sure. Then I'll see you travelling, and my custom agents might ask you to open your bag. And how are you going to transport that Porsche, that Bose home-cinema, those boxes of fine Champagne, that private jet ... that you want to buy with your hard earned money ? Because they are manufactured by people living here and thanks to good infrastructure and education, all paid-for by taxes.

                "All you've really achieved is to drive the vast bulk of financial transactions offshore"

                no, I have effectively made them unprofitable, but not only here, in many places. Because even if the financial world pretends to have its own life, at some point there is collateral, and a financial transaction tax is effective when you need that collateral, so it will, in effect, starve the financial world of real-world collateral. Especially as most collateral is government bonds, which are geographically bound.

                offshored a lot of bank workers job

                good riddance. But it's also funny in a historic perspective.

                1. LucreLout Silver badge

                  Re: Corporations paying zero tax, a solution?

                  "ok, lets. Why would I tax it to 1% ? If this money goes to a "friendly" place, I might indeed tax it at 1%, or even 0.1%, but if it's going to a place where I know you're going to leverage 100:1 and do HFT that destroys my economy, you can bet I won't let you get away that cheap. Let's rather talk about a 30% tax here."

                  LOL! Good luck with that. At best, at very best, you'll see firms taking out loans abroad to fund their transactions well away from your spite tax (See Apple for details). You'll simply get £0 with a rate anywhere north of 0.1%. I used 1% only to keep the numbers simple for you in the forlorn hope you might follow what was written.

                  "Then I'll see you travelling, and my custom agents might ask you to open your bag. And how are you going to transport that Porsche, that Bose home-cinema, those boxes of fine Champagne, that private jet ... that you want to buy with your hard earned money ? Because they are manufactured by people living here and thanks to good infrastructure and education, all paid-for by taxes."

                  But you won't. Firstly you're assuming all my property is in the UK, when at the level we're talking about, it won't be. Secondly you can't tax EU registered vehicles entering the UK. And lastly, pay attention now because this point it critical, you're talking about at best being able to tax a very small percentage of the profits I repatriate after indulging in unlimited financial transactions offshore. So that 0.1% you might have hoped for is now looking like 0.0000000000000001%

                  See any premiership footballer for details.

                  "I have effectively made them unprofitable, but not only here, in many places. "

                  No, you've made them expensive here theoretically, because they'll all still take place, just offshore and away from you.

                  See what happened to New York when they upped tax on Wall Street (hint, big hint, it moved to the City)

                  "Because even if the financial world pretends to have its own life, at some point there is collateral, and a financial transaction tax is effective when you need that collateral, so it will, in effect, starve the financial world of real-world collateral. "

                  You obviously don't understand what collateral is. See any decent book on finance.

                  "Especially as most collateral is government bonds, which are geographically bound."

                  Erm, no, they aren't. They might be geographically issued, but that is all. Or do you mistakenly believe all T-Bills are held within the US, and all Gilts within the UK? What about derivatives of these?

                  See any central bank for details.

                  "good riddance. But it's also funny in a historic perspective."

                  Ahh, the old socialist spite & envy. It never takes long to bubble to the surface.

              2. Marshalltown

                Re: Corporations paying zero tax, a solution?

                The situation is far too complex to depend on taxes as a solution. Besides which, as the author pointed out, governments are hopeful monsters. They tax in hopes of scrambling back into a tenable situation which remains a hope on the horizon. If you are going to try using taxes as a solution, you need to tax even "off-shored" business as if it were on shore. If a multinational doesn't like that, tough. They can do business somewhere else. That would at least open the domestic market to domestic producers. The real problem however is the consumer-based model which, as the author pointed out, requires "consumers" to be idiots who buy stuff to ship to the dump/land fill/tip. The reason that "luxury" goods are expensive is that they arrive at the landfill at much lower rates proportionate to the annual numbers produced. The primary buyers include a disproportionate number who simply want to buy a single item that will last a very long time. Quality goods are excellent drivers of customer loyalty but very hard on profits. Crap goods on the other hand are first class sources of profit but draw very little loyalty. They require monopoly markets before they can be really big.

  2. Anonymous Coward
    FAIL

    One factor left out - The System

    > it doesn’t matter who wins the next election

    The reason why it doesn't matter who wins the next election, and why economic issues are not going to be any different, is that we are now cottoning on to the fact that it doesn't matter what colour is in charge, because their ideologies are exactly the same. The king is dead, long live the king. What's worse. the article left out one significant positive feedback loop - that the gap between rich and poor is growing and that more of us are on the poor side of that gap.

    Over the past 30 years, those in government have shown they have a scant understanding of international law, let alone the complexities of the economy, and every hue of government has simply delivered more of the same. Douglas Adams was right - those who want to govern are the least capable of doing so. Maybe it's time we stopped playing their game, take our ball away (it is our ball after all) and played a game to our rules.

    Anyone know of a political party with differing ideologies these days?

    1. Christoph Silver badge

      Re: One factor left out - The System

      "Anyone know of a political party with differing ideologies these days?"

      The nearest to it is the Greens. They're a long way from perfect, but they are trying. And they definitely want to get away from the current system while we still have a planet we can live on!

      1. Anonymous Coward
        Anonymous Coward

        Re: One factor left out - The System

        I want to like the Greens, I really do. But without the list voting systems as used in the EU parliament, voting green in Parliamentary elections is basically a vote for UKIP/conservatives, because it is one vote fewer for the other parties. (And if you happen to have one of the remaining sensible Conservative candidates, why not vote for him or her? If you are a Green who lives in Richmond, your rational vote would seem to be Goldsmith.)

        I think the mistake the Greens have made is that they should not form a single party, but rather form green wings in the other parties, based on which one in a given area might get elected. This is basically what happens in some constituencies with large Asian communities, where the Asians tend to join whichever party looks most likely to gain seats. It is a rational strategy.

        There is only one political party which is explicitly anti-Green, and that is UKIP. (To be fair, parts of Scottish Labour are also very anti-Green, because they want traditional jobs.) Zac Goldsmith isn't, admittedly, popular with his own party, but that's because he makes good points about democracy rather than because of his green credentials.

      2. h4rm0ny

        Re: One factor left out - The System

        The Greens have one especial glaring fault - an obsession with wind power and a conditioned rejection of nuclear power. Energy is one of the few fundamentals in our society - if you have cheap and plentiful energy much of the rest follows.

        But the Green Party keep turning their backs on tme best source of it in favour of massive and detrimental subsidies for one of the least effective sources. If they'd make an evidence-based decision on it, they'd have removed the biggest reason not to vote for them as far as I'm concerned.

        1. Waspy

          Re: One factor left out - The System

          I completely agree. It's a matter of pragmatism, a question of degree. I live with a fervent greens supporter who keeps quoting mark Thomas and other such people with investigations into how bad nuclear companies are, how toxic soil is in the surrounding area and how unhealthy it is for locals. Well yes, it isn't great, but when people like my housemate also concede that carbon buildup in the atmosphere is a pretty big fucking problem and you are relying on half baked solutions using wind power to mitigate this problem (without any way to continuously generate power or store excess energy when not being used and for which sites are continually NIMBY blocked) then which is the biggest threat? You are effectively turning your back on a readily made solution to preserve the health of a tiny minority. Surely it would make more sense to simply rehouse these people and go all out with nuclear?

          Ah but then that would go against the dogma that organisations like greenpeace have been preaching for decades and whose supporters are also green voters. Greenpeace is a despicable organisation that engages in knee-jerk, heart-wrenching campaigns like ripping up and vandalising scientific studies into more disease resistant crops (to help feed the hungry) and successfully lobbying the eu government to ban aspects of stem cell research because some idiots in greenpeace felt it was 'morally wrong' (despite it having fuck all to do with climate change and thus needlessly extending the suffering of people with mnd, parkinsons, ms etc). You want to know why the greens haven't engaged in evidence based policy? Look no further than greenpeace.

      3. Anonymous Coward
        Anonymous Coward

        Re: One factor left out - The System

        No, not the greens, they are just that same idiocy marketed to fools of a green persuasion.

        You only need look to see how much EU money and government grants they get to see they are fully bought and paid for members of the same establishment.

        Actually UKIP is the party which is different, because its understands this article. And hasn't been bought yet.

        The clue is in the article...banks that see their purpose as the creation of debt, not the processing of transactions and the supply of capital. Governments that see their purpose as winning elections, not actually moderating the social and international tensions of societies and delivering a stable environment in which commerce can take place and lives be led.

        The key principle is that both banks and governments have utterly lost any sense of social responsibility.

        There is no noblesse oblige any more. Actions are taken for narrow short term political or financial gain with no thought as to the impact that these actions will actually have ten, 20, 100 years from now.

        And that is most true of those who lay the most claim to social responsibility. Marketing yourself as socially responsible is just the fashionable way to sell your product.

        1. Anonymous Coward
          Anonymous Coward

          Re: One factor left out - The System

          >> Actually UKIP is the party which is different, because its understands this article. And hasn't been bought yet

          um Mr Farrage seems to be meeting Mr Murdoch and his minions fairly frequently. See recent Private Eye for details.

        2. Anonymous Coward
          Anonymous Coward

          Re: One factor left out - The System

          As I understand it, UKIP is basically funded by one man, plus the expenses they can get out of the European Parliament. They've already been bought by their donor, and if Britain does leave the EU they will suddenly have a funding gap. They are actually parasitic on the EU.

          1. codejunky Silver badge

            Re: One factor left out - The System

            @ Arnaut the less

            "They are actually parasitic on the EU"

            While that comment made me laugh quite a bit on its own I must point out that UKIP gets funds from the EU based on the rules of the EU to provide such funds for the democratically elected representatives. If UKIP is a parasite (on the larger parasite I will point out) then so are the other little parasites.

        3. Anonymous Coward
          Anonymous Coward

          Re: One factor left out - The System

          Yes, but you are assuming that, not having been bought, UKIP have anything remotely sensible to offer. A lot of us don't accept that assumption ...

      4. Tom 13

        Re: The nearest to it is the Greens

        Yeah, the Greens aren't another log on the fire, they're a tanker truck of gasoline.

        This is the real reason we can't fix the economy. Too damn many people are too stupid about what to do to fix it. Especially amongst the educated classes.

      5. P. Lee Silver badge

        Re: One factor left out - The System

        >The nearest to it is the Greens.

        At this point it doesn't matter who the third party is. Just vote for them to break up the duopoly.

        But the article author is correct: interest rates can't be raised without instantly bankrupting everyone, but soon the government will no longer be able to borrow due to unattractive interest rates and excessive risk. Either the public or the government must collapse. I think Money magazine covered this over a year ago, surmising that the UK is doomed to certain financial collapse. The borrowing figures are sky-rocketing irrespective of "austerity" talk.

    2. Anonymous Coward
      Anonymous Coward

      Re: One factor left out - The System

      "What's worse. the article left out one significant positive feedback loop - that the gap between rich and poor is growing and that more of us are on the poor side of that gap."

      It gets worse. It used to be that the rich always had some unfulfilled needs that required the work of artisans, specialists, and so on to fill, so the poor could train in those services and start drawing money from the rich to sustain themselves.

      The problem is that the list of services the rich need but only the poor can deliver is short and getting shorter—to the point of threatening to become blank. Think increasing automation and smarter computers. It's getting dangerously close to the point where if a rich person needs a service, they can consult an expert system, enlist a machine, or hire the same from a fellow rich man. It can lead to a dangerous situation: the rich not only drawing more from the poor but the rich becoming self-supporting, a closed society: forever sealing the gates into the chosen fraternity. I'm imagining a world where a small number of mutually-supporting rich people could ignore the wholesale death and destruction of everyone else in the world because they simply don't need them anymore. I doubt it's anything anyone but a panic-monger would espouse since it's basically a checkmate declaration.

    3. Graham Marsden

      @ql - Re: One factor left out - The System

      > Anyone know of a political party with differing ideologies these days?

      "Why 73% of UKIP supporters should actually vote Green"

      1. Anonymous Coward
        Anonymous Coward

        Re: @ql - One factor left out - The System

        Why 73% of greens should actually vote UKIP.

        Rather.

  3. Financegozu

    If you give a politician 1£ ...

    ... he will spend 1.5£. That's why here in Switzerland, we have control over what our government is spending and can even vote down a project (via a referendum) if enough people consider it inappropriate/too expensive.

    1. Frankee Llonnygog

      Re: If you give a politician 1£ ...

      Well, you'll never be blessed with a Universal Credits system if you carry on like that.

      Lucky buggars!

    2. baseh

      Re: If you give a politician 1£ ...

      Basically referendums will be probably be the way of the future, the technology (internet/social nets) even today is easily able to support popular voting on everything, even on the most trivial subjects.

      However there is a very dark side to that: the ease of voting can lead to short term, populist and shallow decisions.

      This comes back to one of the points of the post: education, education, education; without having a very good knowledge of the subject to be voted upon, how can you choose the optimal option???

      And that leads to another facet of the popular vote, maybe the hardest of all: you should learn all you can about the subject before voting and if you feel that you do not know enough d o n o t vote!!

      Each one of the steps above is fraught with dangers and potential misuse, so making it viable is a real challenge.

      Is it realistic?

      1. Financegozu

        Re: If you give a politician 1£ ...

        Look, it's very simple: Those who voted (= those who decided) are also the ones to bear the consequences. What consequences does a politician have to bear for his decisions? (Hint: hardly any as long as they are not illegal)

      2. veti Silver badge
        Facepalm

        Re: If you give a politician 1£ ...

        Budgeting by referendum is certainly one way of ... hurtling to disaster faster than the current trajectory.

        If "the people" could be trusted to manage their collective finances, they wouldn't have got into this mess in the first place. Politicians have bought popularity, because that's what people voted for. What makes anyone think they'd vote differently, if they had direct control of the budget?

      3. Charles 9 Silver badge

        Re: If you give a politician 1£ ...

        "And that leads to another facet of the popular vote, maybe the hardest of all: you should learn all you can about the subject before voting and if you feel that you do not know enough d o n o t vote!!"

        But then you run into the problem of "blissful ignorance." Everyone who goes to vote believes in his or her mind that they DO know all they can about whoever they want to vote. And there's no way to objectively test this because ANY test is a product of man (even a computer program must be programmed by a man at some point), which means SOME form of bias creeps in. And even if we make the test standard the same as for naturalization I would bet people are willing to screw both parties over. IOW, the potential for self-sustaining corruption is endemic to the human condition. There's just no way to escape it long-term, and even correcting their appearances short-term are difficult.

        1. h4rm0ny

          Re: If you give a politician 1£ ...

          >>"even a computer program must be programmed by a man at some point)"

          Actually, some very good ones have been written by women, thankyouverymuch. Perhaps you meant person. Though even that will change with time - I will certainly live to see computers become better programmers than people in the majority of scenarios, barring personal misfortune.

          1. itzman
            Facepalm

            Re: If you give a politician 1£ ...

            A computer was asked to write a bug free program.

            Let X=X;

            .........

            Definitely bug free.

            If the caffeine hasn't yet kicked in, the point is that computers may well be able to write better programs than humans, in a narrow technical sense: the problem is deciding which programs to write...

            1. h4rm0ny

              Re: If you give a politician 1£ ...

              >>"the problem is deciding which programs to write..."

              No, the problem is specifying your use case in precise enough terms that automated tools can take over. And that not only will happen, but is happening. The nature of programming will increasingly shift from writing the software, to writing the tools to specify that software. And once that second part is done to a sufficient degree, it starts to turn on itself and reduce the total amount of programming that is done by people. Barring accident, I should be able to see out another forty years.

              Forty years ago C had just been invented and people were arguing fiercely over whether programming without GoTo was wasteful. You honestly think now that we have the tools to automate much of code production we wont? From the point of view of someone forty years ago, we've already done that with all our compilers and high level languages and we're just specifying how the computer should write the code. From our point of view, the future will look the same and in the same terms.

          2. h4rm0ny

            Re: If you give a politician 1£ ...

            Wow. That's a lot of downvotes in a short amount of time. I'm going to hope that's people objecting to the idea that automated code production will eventually supercede most cases of human code production, rather than objecting to the idea that women can write good software.

      4. tfewster Silver badge
        Thumb Up

        Re: If you give a politician 1£ ...

        @ baseh and followups

        You are not alone! Look up Deliberative Democracy: It addresses the question of professional "elite"* politicians v. "naive" masses, and I agree that education and good, balanced briefings on the topic to be debated are essential. We already use the technology, but petitions and Facebook groups tend to be very one sided at present.

        We don't need a referendum on everything (See "The Rise and Rise of Michael Rimmer"), but I'd be willing to give up a few Bank Holidays to do "citizens" duty as needed.

        My wife has just written her MA dissertation on Deliberative Democracy, and as chief proofreader, I've absorbed a little knowledge** ;-)

        * See also the Dunning-Kruger effect

        ** Just enough to be dangerous. Disclaimer: My wife wouldn't necessarily agree with this post

      5. John Smith 19 Gold badge

        Re: If you give a politician 1£ ...

        "And that leads to another facet of the popular vote, maybe the hardest of all: you should learn all you can about the subject before voting and if you feel that you do not know enough d o n o t vote!!"

        Possibly leaving you with this result?

      6. Tom 13

        Re: This comes back to one of the points of the post:

        Education can't help when it is the primary source of the cancer.

      7. Loud Speaker

        Re: If you give a politician 1£ ...

        The problem with a referendum is that the average level of intelligence is not very high, and half the people are below it.

    3. LucreLout Silver badge

      Re: If you give a politician 1£ ...

      "we have control over what our government is spending and can even vote down a project (via a referendum) if enough people consider it inappropriate/too expensive."

      The only problem with that is that people without knowledge of the issue being debated, and those bought & paid for by the government, such as public servants, also get to vote.

  4. Novex

    To add to the government getting us deeper into the shit, they are also subsidizing low pay and self-employment through in-work benefits, which causes an increase in government expenditure while reducing the tax income*. This seems to have also had the 'unintended' consequence of making at least some employers think that they don't have to pay a living wage out of their profits and can just pay minimum and the government will always make up the difference.

    As an aside, has anyone actually stopped to think why suddenly so many people decided to become self-employed? I have an idea, maybe it's because the private Work Programme providers (and by extension the public Job Centres) kept banging on at the unemployed to become self-employed as a way to trick the figures so they could get their WP pay-off from the government, because they sure weren't getting it from getting anyone into actual jobs (and unfortunately for me, I know this from being on the receiving end of such advice). So that increases the debt even more.

    *technically, if all those people who are in low pay were on full unemployment benefits, then the government expenditure would be higher, true. But the effect in the long term is that low pay carries on for far longer and therefore over time the benefit expenditure is higher and the tax income lower.

    1. Anonymous Coward
      Anonymous Coward

      " subsidizing low pay and self-employment"

      Exactly this. Not only do large companies get tax exemptions, taxpayers subsidise them by providing benefits to their underpaid workforces and "contractors".

      Fair is fair. Rather than setting arbitrary minimum wages, perhaps one option is to fine companies by the amount of benefits paid to their workforces, plus an uplift. Enforce the HMRC rules on when a subcontractor is actually an employee, which are being flouted every day. Make it pay for them to provide adequate wages. And if some of these companies go bust, well, that's creative destruction. At the moment the socialism goes to the people who have the most money. That's where we should dismantle it first.

      1. Tom 13

        Re: them to provide adequate wages.

        The "adequate wage" is a myth must like the average person. And adequate wage for a teenager living at home with his parents is different from an adequate wage for a just graduated college student is different from an adequate wage for a married father with two children supporting a stay at home wife is different that a two parents working family is different from an elderly person with a paid off house.

        I get that some small number of people in the past figured out ways to abuse their privately held companies to fund jet-setting life styles without paying taxes. But this solution of taxing corporation so they can't do that is a cure that is worse than the original disease. Make corporation zero tax entities and then either tax only income made by people OR sales taxes on goods sold. Write the income tax laws in such a way that if the corporation is effectively paying a person's salary without paying it, the corporation has to pay the taxes on that person's benefits.

        The real problem isn't that governments aren't getting enough income, it's that they spend too much. This is compounded by the fact that they get to play smoke and mirrors with their budgets and shift the blame to places where it doesn't belong. It belongs on the POLITICIANS and nowhere else. Because even the politicians put into office by people who are too short-sighted to see the dangers of overspending are still served best by not overspending.

    2. Anonymous Coward
      Anonymous Coward

      So those self-employed people came off benefits? Where did their money come from after that? I'm not being narky - just trying to understand the logic.

      1. dogged

        Tax credits. It's not getting off benefits, it's merely changing the name of the benefit.

  5. G R Goslin

    All been done before

    Not in reality, perhaps, but Frederick Pohl and Cyril Kornbluth wrote a book, in 1955, called Gladiator at Law, which exactly spelled out the process of Sub Prime mortgages., and the subsequent collapse of the economy, to the point of bread and circuses. So fifty, odd, years on we are nowhere towards a 'fix'

    1. Tom 7 Silver badge

      Re: All been done before

      The big assumption you are making here is that 'they' want the economy fixed. Its a bit like asking an undertaker to look for the water of eternal life. You dont look for solutions to the 'problems' you make a living from. In fact its even worth your while to ensure that people who supposedly teach economics continue to sell the old lies that maintain inaccurate economic theories and prevent the 'truth' coming out.

      I've got a £200 computer here that can do 32Billion floating point operations a second. I'd say that can model a whole years economic activity in the UK in less than a minute. In a month it could test and forecast and improve more economic models that you can shake a stick at.

      Economics remains guesswork because you wouldn't want it any other way apparently.

      1. Anonymous Coward
        Anonymous Coward

        Re: All been done before

        "I've got a £200 computer here that can do 32Billion floating point operations a second. I'd say that can model a whole years economic activity in the UK in less than a minute. In a month it could test and forecast and improve more economic models that you can shake a stick at."

        Well, what's stopping you?

        1. itzman
          Paris Hilton

          Re: All been done before

          The problem is that economics doesn't actually conform to any models that actually seem to work.

          And the way economics has been run since WWII is by using debt to kick start investment into a bigger and better tomorrow. On the basis that growth solves the debt problem. More weath tomorrow repays the debts of today.

          That fell apart when it became fairly obvious* that other constraints than money supply were limiting growth, and banks and governments turned to funding consumption, not capital plant and infrastructure, sometime in the late 90's.

          *except to banks, politicians and economists.

          1. Tom 13

            Re: run since WWII is by using debt to kick start investment

            That's what they want you to believe but it's not actually true. There have been a couple of instances in which lowering taxes was used to kick start the economy and they've worked pretty well. Kennedy in 64 and Reagan in 80-83 are the two most obvious.

        2. Alan Johnson

          Economics cannot be modelled

          Economics cannot be modelled in this sense:

          1. Any economic theory that works reasonably well is then used by financial organisations to calculate the consequnces of their own behaviour and 'optimise' for profit. This is a form of feedback that continues until the model fails which it inevitably will.

          2. Economic theory is almost entirely based on the idea of a large collection of 'rational' agents acting in their best interest. This does not reflect reality where the psychology of people comes into play. In order to have an accurate model of economies we need an accurate model of people.

          This does not mean that useful quantative and qualtative economic theories cannot be developed but economics as some sort of engineering disciplince is not possible.

          The article itself seems written by someone devoid of significant knowledge about economics. The idea that GDP growth is tied to increased resource consumption is paticualarily bizarre for someone writing for a magazine read by software developers. The clus is that Software development and sales add to GDP.

          1. Anonymous Coward
            Anonymous Coward

            Re: Economics cannot be modelled

            Don't you know that the logic mines are almost exhausted ?

            Everyday software engineers and programmers the world over have to find ever more convoluted ways of achieving simple tasks because all the easy code has been mined and copyrighted.

            So unless you are modelling your economy in Plasticene(tm), you are all out of resource.

            (and no, you can't use it like that, it's outside the Ts & Cs)

          2. Anonymous Coward
            Anonymous Coward

            Re: Economics cannot be modelled

            Exactly. As has been pointed out in Scientific American, a typical journey in a US SUV uses 99.5% of the fuel for something other than transporting the driver from A to B. If improved technology could increase transport resource utilisation to 95% wastage, then current resources would transport 10 times as many people, increasing utility in the economy. Resource consumption may be a sign of inefficiency, not growth.

            If economics was an engineering discipline it would be looking at aspects of MRPII, kaizen and quality management. And this involves a measure of control over the economy.

      2. Tim Worstal

        Re: All been done before

        I very much doubt this:

        "I've got a £200 computer here that can do 32Billion floating point operations a second. I'd say that can model a whole years economic activity in the UK in less than a minute. In a month it could test and forecast and improve more economic models that you can shake a stick at."

        From here:

        http://www.theregister.co.uk/2014/08/13/centrally_planned_economies_never_work_worstall_on_weds/?page=2

        "It's worth thinking it through: we've those 65 million utility functions. We've also got some number of things in the economy that we've got to plan the output of. Estimates vary, but some say there are as many as one billion things available in London right now. Not one billion individual items, but a billion types of items. And then there's geography: a two inch left-hand threaded brass wood screw in London is not the same as a two inch left-hand threaded brass wood screw in Lancaster.

        The end result is that we'd need at least a century to be able to run this program. And no, that's not a century of elapsed time; we need to wait for another century of Moore's Law to kick in before we have a computer able to do this.

        Which is our physical impossibility of planning our economy.

        If you'd like the above argument in all its glory (8,000 words – with equations!), it's here in this excellent essay by Cosma Shalizi, associate professor in the Department of Statistics at Carnegie Mellon University."

        The paper is here: http://crookedtimber.org/2012/05/30/in-soviet-union-optimization-problem-solves-you/

      3. Naughtyhorse

        Re:model a whole years economic activity in the UK in less than a minute

        Go on then.

        Before you start maybe read a book on chaos theory (positive feedback is the clue). It would prevent you making some basic mistakes in the coding.

        (and stop you looking a bit..... disengaged on fora :D )

        1. itzman
          Headmaster

          Re: Re:model a whole years economic activity in the UK in less than a minute

          Positive feedback is not the clue.

          Understanding multiple lagging negative feedback in a non linear suite of equations is the clue to chaos.

          The whole POINT about chaos is that it is both unpredictable, and yet utterly deterministic.

      4. Caoilte

        Re: All been done before

        I've run that program already. The answer is 42.

      5. Loud Speaker

        Re: All been done before

        It has been proven in several academic studies that "the more qualified an economist, the less accurate his predictions". Like in the engineers in Apollo program, the economists have a minus sign in the equation where they should have a plus.

        Consider the idea that "when there is inflation, it must be countered by raising the interest rate". The problem with this is that if you increase the interest rate, companies face higher costs (because they rely on borrowed money) and lower demand - because people can't afford their products. So either they raise their prices - adding to inflation - or they go bust. Not only that, the directors have higher expenses because their mortgages go up, so they must have pay rises or they will be bankrupt and barred from being directors (I have been in board meetings where this has actually been said).

        Generally, the economic cycle consists of people doing OK. They get a pay rise, and buy more stuff. Just as the manufacturers are approaching a volume where they could justify more automation, the politicians get a touch of inflation panic, and raise the interest rate, making the automation unaffordable.

        Politicians are stuck in an 18th century agrarian model of economics - and one that was wrong even then.

        Inflation is cause by the perception that prices will rise causing people to pay more for something in expectation that the price will rise further. The correct response is to ban short skirts, or tight trousers, or some other random thing. It does not actually matter what you do - so long as you are very zealous about doing it. This is the one case where the classic political strategy "something must be done - this is something -so we must do it" has a chance of working. So long as the something is NOT raising the interest rate.

  6. Ossi

    Expecting perfection? You're going to be disappointed.

    Everyone wants a system which delivers wealth, equality etc. There are some people in the world, let's call them pragmatists, who understand that there are trade offs and you can't have everything. The perfect economic system doesn't exist, as perfect things tend not to (apart from Sherlock, obviously). That's not to say that we shouldn't aim to improve things, just that it's sensible to start any discussion by deciding what your priorities are, going for those, and realising that you're going to have to lose other things in order to achieve those priorities.

    Blaming 'the system', 'corporations' big this, big that etc. is all terrific fun, but can you seriously believe its that simple? What miracles do you actually expect from economists? They can't deliver what you're expecting: and neither can you or anyone else.

    1. Vociferous

      Re: Expecting perfection? You're going to be disappointed.

      "What miracles do you actually expect from economists?"

      I think part of the point is that the goals set for economists are both unattainable and mutually exclusive, and the methods used to achieve those goals (e.g. subprime lending) destructive to society.

      That's where the government should step in with regulation, but doesn't, as it's dependent on growth to finance its deficit spending.

      And the result is crashes.

      1. Ossi

        Re: Expecting perfection? You're going to be disappointed.

        Were they 'destructive to society'? How easily you can forget the years of economic growth before the crash. Crashes are part of the economic cycle. They've always happened, and they always will. Anyone telling you otherwise is trying to sell you a book. Economics can reasonably be judged a success if the progress between crashes is greater than the crash - and that's been the case for a very long time.

        But yes, I agree that our economic goals - or should I say our demands on economists - are both unattainable and mutually exclusive - which is exactly my point that choices have to be made, instead of naively believing that you can have everything.

        1. Tom 7 Silver badge

          Re: Expecting perfection? You're going to be disappointed.

          "Economics can reasonably be judged a success if the progress between crashes is greater than the crash - and that's been the case for a very long time."

          That's making the very big assumption that the economics generates the wealth rather than human ingenuity and endeavour. Correlation does not mean causation.

          1. Anonymous Coward
            Anonymous Coward

            Re: Expecting perfection? You're going to be disappointed.

            Agree. Without an economy not dependent on the present world financial system to compare, we can't be sure that the present system is really a success overall.

            Even during the Cold War, we couldn't really conclude that communism was a failure; what we could conclude was that in a battle between capitalism and communism, communism lost. Ideally, our measure of societies shouldn't be their military effectiveness if we are comparing economic management. Where communism wasn't constantly under threat, such as in Kerala, India, it was reasonably successful at delivering education and increased life expectancy to some very poor people, whereas capitalism led to parts of Africa being poorer than they were before independence from the British Empire.

            I'm not making the case for either side here and I know this is cherrypicking, but my point is that unless people from another planet suddenly arrive we don't have any objective measure of how good our systems are.

        2. Naughtyhorse

          Re: Expecting perfection? You're going to be disappointed.

          That is just incorrect.

          On so many levels.

          We all (most) have lots of shiny-shiny now. But mom and dad both work full time - and barely scrape by, junior leaves college with the same personal debt as a mortgage, just no house to show for it and a degree that just about qualifies him to flip burgers.

          And these are broadly speaking 'the haves'

          Thats some economic miracle you have there

      2. Tom 13

        Re: subprime lending

        Subprime lending in and of itself was not the problem. It existed a long time back and the few companies initially engaged in it did reasonably well for themselves. There is a class of borrower who on paper didn't meet standard loan requirements. Their guaranteed salary was quite below the requirements. They survived because they had high and highly variable bonus pay structures. You could, if you took the time model that based on past performance they were likely to make similar bonuses in the future so you had a reasonable risk. These companies also made sure they had sufficient reserves to cover any short term losses they incurred is some of their evaluated risks turned out to be wrong.

        That's where the government should step in with regulation, but doesn't, as it's dependent on growth to finance its deficit spending.

        This is where subprime actually went wrong. Instead of government acting as a brake on subprime lending, they effectively mandated everybody else had to get into it, AND mandated that they didn't have to have the necessary reserves in case something went wrong. They didn't do it directly, they did it through "red lining legislation" that ignored the economic reality that when looking strictly at financial capacity some people just shouldn't be issued loans. Once the banks made those loans it was self-evident they were high risk loans the bank had to get rid of. So they did. The only way to get rid of them was to chop them up into pieces and mix it all together (which does lower absolute risk, but didn't make them lowest risk) and re-sell it. Unfortunately the effect of that was to poison the whole system. All because politicians didn't want to obey the laws of economics.

        1. Vic

          Re: subprime lending

          The only way to get rid of them was to chop them up into pieces and mix it all together (which does lower absolute risk, but didn't make them lowest risk)

          It doesn't lower the total risk of the whole package - just the risk of an individual loan (whilst raising the risk of those mixed up with it).

          Unfortunately, these packages were used merely to *obfuscate* the risk, and were therefore sold on as lower risk than they really were...

          Vic.

        2. Anonymous Coward
          Anonymous Coward

          Re: subprime lending

          'didn't want to obey the laws of economics.'

          Economics is not a science but an art.

          There is only one absolute law of economics and that is

          Labour that is not used today is not available to be used tomorrow.

          (similar to Epoxy that is mixed now will not be spreadable in an hour or so)

          1. Loud Speaker

            Re: subprime lending

            Yay, I have the solution - mix economists with epoxy, and leave for a couple of hours so they not only can't be used now, but not in the future either!

        3. Anonymous Coward
          Anonymous Coward

          Re: subprime lending

          The problem with your comment was it was the senior and supersenior debt that went pear shaped. It wasn't the poor people over-borrowing that caused the crash; it was property developers building too much stuff in the belief that prices would rise forever - the supposedly "good" borrowers. The toxic debt that got mixed in with the good stuff was usually things that had looked good not that long before - till prices dropped.

  7. Vociferous

    "We can re-define a government as an entity that is forced by its own recklessness to stimulate growth."

    That is a crucial and important observation. Also something that's very easily fixed, if there's political will to do so.

  8. Buzzword

    Where's Worstall?

    Dear Reg,

    Can we get Tim Worstall's rebuttal to this? I imagine he'd have a rather different take on the matter!

    1. Tim Worstal

      Re: Where's Worstall?

      Eeek!

      "Indefinite growth on a finite planet is not possible. I don’t need to explain that. "

      Sadly you do. For it's wrong, badly wrong. And trying to explain it would aid in realising that.

      It's linked to this:

      "Looked at another way, GDP is also an indicator of the amount of the world’s resources that were used up by commerce. In other words it is the rate at which the planet is being raped."

      GDP isn't an indicator of resource use. It's a measure of value added.

      We all entirely agree that infinite growth in a finite system isn't possible. But you've got to be careful that the finity you're assuming actually exists. Sure, we can't have an infinite number of people on the planet. We also can't have an infinite number of cars, nor an infinite number of physical things. But people, cars, physical things even, are not GDP nor are they economic growth. GDP is the measure of the value that has been added in the economy. And as long as we continue to find new ways to add value then the economy can continue to grow.

      This is true even in Herman Daly's "steady state" economy. Even if we only ever recycle everything, abstract no new physical resources from anywhere ever, as long as we continue to find new ways of adding value to our current stock then GDP will continue to rise.

      I agree that economics ought to be taught as a general part of the school curriculum, of course I do. For then everyone would already know all of this.

      1. Anonymous Coward
        Anonymous Coward

        Re: Where's Worstall?

        > GDP isn't an indicator of resource use. It's a measure of value added.

        Perhaps you could enlighten us and explain what GDP measures then.

        Since you exclude economic ouput from your definition of measuring "value added" - by stating that "people, cars, physical things even, are not GDP nor are they economic growth" - it follows that GDP measures something else.

        What is it? What is your definition of "value added"?

        1. Tim Worstal

          Re: Where's Worstall?

          Here's the standard definition (from Wiki of course):

          "Gross domestic product (GDP) is defined by OECD as "an aggregate measure of production equal to the sum of the gross values added of all resident institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs)."[2]

          GDP estimates are commonly used to measure the economic performance of a whole country or region, but can also measure the relative contribution of an industry sector. This is possible because GDP is a measure of 'value added' rather than sales; it adds each firm's value added (the value of its output minus the value of goods that are used up in producing it). For example, a firm buys steel and adds value to it by producing a car; double counting would occur if GDP added together the value of the steel and the value of the car.[3] Because it is based on value added, GDP also increases when an enterprise reduces its use of materials or other resources ('intermediate consumption') to produce the same output."

          Note well that last: a reduction in resource use is an addition to GDP. And yes, it really is value added.

          So, of course the production of a car is a *part* of GDP as people value the car more than the value the steel and labour and rubber that went into making it (not always the case, the value of Trabants rolling out of the factory was lower than that of the raw materials).

          But people also value the lovely software that some of you guys around here write. And that requires no resource use (time and effort, yes, but none of those "finite resources") in manufacture. But it's still an addition to value added and thus is part of GDP.

          There's no surprise in this either: it's exactly the same thing Herman Daly is saying when he talks about quantitative growth and qualitative growth. Perfectly willing to agree that we can't have an infinite amount of the former. But given that "economic growth" includes the second as well (and actually is rather more important too in terms of the quantitiy of each) and we can have an infinite amount of that thus, therefore, we can have infinite economic growth.

          1. Charles 9 Silver badge

            Re: Where's Worstall?

            "But people also value the lovely software that some of you guys around here write. And that requires no resource use (time and effort, yes, but none of those "finite resources") in manufacture. But it's still an addition to value added and thus is part of GDP."

            You still need a finite resource even for software: you need energy: energy to think of the design, energy to exert yourself, energy to employ tools and machines to carry out your design, and (especially here) energy to actually put your stuff to use. In addition, you need time to do everything. Both energy and time are inherently finite.

            1. h4rm0ny

              Re: Where's Worstall?

              >>"Both energy and time are inherently finite."

              But you must concede, both are on a rather different order of magnitude than things like aluminium or land. If you have to factor in the heat death of the Universe as your rebuttal to an economic argument, there may be a case to make that your rebuttal lacks practical relevance.

              1. Charles 9 Silver badge

                Re: Where's Worstall?

                "But you must concede, both are on a rather different order of magnitude than things like aluminium or land."

                A different order of magnitude, yes...lower. Especially time. "Your days are numbered" comes to mind. No matter how much we want to fight it, our time comes eventually, so every living thing as far as we know has a time limit. Meanwhile, how much energy can one human or one community amass in any given time period and put to practical use?

            2. LucreLout Silver badge

              Re: Where's Worstall?

              "In addition, you need time to do everything. Both energy and time are inherently finite."

              Not on any human scale they're not. For as long as the sun exists, there will be available energy, there will also be time.

              If we needed it for any pressing purpose, we could extract energy far faster than we currently do. Until the end of the species, time will be infinite in economic terms and irrelevant afterwards.

            3. Tom 13

              Re: Both energy and time are inherently finite.

              Short term, everything is finite. Long term everything is effectively infinite. You just need to select the appropriate term.

          2. Any mouse Cow turd

            Re: Where's Worstall?

            Ash, but ifa company borrows heavily to buy the steel to build the car then should the total value add be included in the GDP or just the delta between the debt owed and the value added?

          3. Anonymous Coward
            Anonymous Coward

            Re: Where's Worstall?

            > So, of course the production of a car is a *part* of GDP

            Production of a car wasn't part of GDP calculation in your previous post. Neither were people, taxes, etc. Now they are. Also, GDP wasn't a measure of resource usage in your original post. Now it is.

            Writing software uses resources too: the laptop I'm currently typing on depreciates over time, due to normal wear and tear. Eventually it will become unusable, because some part will fail and won't be replaceable. I am also using electric power to keep the laptop running. That is resource use. Just like manufacturing a car consumes resources - steel, oil used in fabricating the plastic parts, glass, and then the car depreciates over time due to normal wear and tear. But, unlike a car, where a majority of the materials used in constructing the car are recyclable - at a minimum the steel, a laptop is pretty much not recyclable.

            So, cost of materials is included in the calculation of the value of the car, just like cost of materials is included in the calculation of the value of a laptop. Plus cost of manufacturing, cost of industrial equipment depreciation wear and tear, cost of labor, cost of financing the production - the car or laptop manufacturers borrowed money at interest in the short-term corporate bond markets to finance their operations. Plus cost of economic profit to be made on the sale of the laptop or of the car.

            So, your measure of this nebulous "value added" when calculating GDP is really nothing more than what Karl Marx already discussed in "Value, Price and Profit - 1913":

            https://archive.org/details/valuepriceprofit00marx

          4. Jes.e

            Re: Where's Worstall?

            "But given that "economic growth" includes the second as well (and actually is rather more important too in terms of the quantitiy of each) and we can have an infinite amount of that thus, therefore, we can have infinite economic growth."

            No, I really don't think we can..

            A human being requires energy to come up with those delightful programs (and books and art).

            If you don't think this is true, please consider IBM's Watson doing a medical diagnosis, or analysing Wikipedia to come up with answers to a random debate question:

            http://www.ibtimes.co.uk/ibm-supercomputer-watson-programmed-debate-moral-issues-1447413

            Human work requires energy even if it is mental.

            I would be very interested to hear what the economics experts on this forum think on the following little piece:

            Do The Math- Exponential Economist Meets Finite Physicist

            http://physics.ucsd.edu/do-the-math/2012/04/economist-meets-physicist/

            Oh yes.. the author on that site also has a rather remarkable piece on how long it would take humanity to use more energy than the entire galaxy at even very modest economic growth using nothing but the formula for exponential growth (if you're interested).

            Though it's said that if you get 10 economists in a room, you will get 11 different theories- the one thing they will agree on is that growth is foundational to their "science".

            The true problem with economics as a whole is that economists think the environment is a subset of the economy rather than the obverse.

        2. veti Silver badge

          Re: Where's Worstall?

          GDP (currently) *includes* "cars, physical things", but it's not *synonymous* with them. It's entirely possible that if we completely stopped making cars, today, forever, GDP would go *up* as a result.

          That was what Thatcher did, and it worked.

          Cars have a utility to people, which is reflected by how much money they're willing to pay for them. If you can take those same resources and convert them into something that people will pay more for, then you'll be adding more value. That's why cars replaced carriages in the first place.

          There's a classic fallacy in production engineering, where the output of a process is hard to measure, so you measure the input instead and assume that it's related. This can work for a little while, but if you keep it up for any length of time, you quickly find that the input is going up and up, and the output (as far as you can tell) remains flat, i.e. the process rapidly grows less efficient. That's how we got into the mess of the 1970s. It happens because of one of the iron rules of management: You Get What You Measure.

          This "equating input to output" is endemic in our political system. It's why we've historically spent so much time arguing about things like "teacher/pupil ratios", "time spent per doctor's visit", "miles of road built/added", "numbers of people in work", rather than what we really care about in each case (educational outcomes, health outcomes, traffic/productivity, generation and distribution of wealth). Because in each case, the output is hard to measure, but the input is far easier.

          Focusing on "things produced" is another way of measuring input rather than output. "Producing things" is not the goal. "Making people's lives better" is. Measuring GDP as a whole, without trying to judge or differentiate between "good" and "bad" production (e.g. manufacturing vs services), is the closest we currently have to a way of measuring that.

        3. Anonymous Coward
          Anonymous Coward

          Re: Where's Worstall?

          To give an example of the GPP's point, steel scrap gets recycled all the time. Thus the steel which in 1904 formed part of a rich person's toy car, slow, unreliable and expensive to operate, is still around but in much more efficient, reliable products. The value of the goods embodying the steel has increased.

          The material content of a colour TV set has probably dropped by a factor of 40 or so since they were introduced, but a 1960s colour TV is not worth as much as a single modern one.

          Steel, aluminium and some other materials basically are not sold, you borrow them.

        4. Anonymous Coward
          Anonymous Coward

          Re: Where's Worstall?

          explain what GDP measures

          I believe it was recently redefined by the office of national bullshit to include consumption of "hookers and coke" in addition to various other traditional unmeasurables.

      2. Naughtyhorse

        Re: Where's Worstall?

        pardon?

        That word 'infinity' I don't think it means what you think it does

      3. DougS Silver badge

        @Tim Worstal

        Your recycling example is a good one. If I'm Coke, and I need enough aluminum to make a billion cans a year, I don't care if it is "new" aluminum or recycled. If you sell me that aluminum, your aluminum output counts towards the GDP, whether or not it is smelted from bauxite or recycled from waste aluminum (like empty Coke cans)

        If you were able to use renewable energy (hydro, solar, wind, whatever) in addition to waste aluminum, your operation would be almost entirely resource neutral on an ongoing basis.

        1. Tim Worstal

          Re: @Tim Worstal

          While I obviously agree in theory I don't in the specific instance you give. For one of the things you can't recycle used beverage cans into is new beverage cans. The alloy for the top of the can is slightly different from that for the side and bottom. When you crush and melt the old cans they mix and can't be used as cans again.

          Meaning that you can turn old aircraft into cans, and old cans into new aircraft, but not old cans into new cans.

          But that's just me bneing a pedant again: the core argument I obviously agree with.

          1. itzman

            Re: @Tim Worstal

            rubbish. You could easily turn the whole lot into aluminium silicate and various other metal salts compounds, separate them out, re smelt them and make new cans.

            By using vast amounts of energy.

            You can recycle any element in whatever molecular compound you want, if you have access to infinite amounts of cheap energy. You can make diesel gasoline and tar from water and carbon dioxide.

            What you can't do, except by nuclear transmutation, is make new elements.

            The most entropic substance in the universe, into which, by current theories all matter will ultimately turn, is cold iron.

            So even with nuclear transmutation, the universe relies on 'anything that isn't iron' to fuel the processes of existence.

            We are surfing the entropy wave of the big bang, and when its spent itself on the beaches of reality, we will be left high and dry, and dead.

      4. itzman

        Re: Where's Worstall?

        We can in principle add an infinite number of zeros to anyone and everyones bank account.

        That is not what is at stake here however.

        We can also define value as 'man hours achieving nothing of any value' as well.

        That is not what is at stake here however.

        To create something of use - say a house - takes either man hours of labour or a certain amount of entropy (free energy).

        That is what is at stake here.

        Growth in a post industrial society of anything of real value - I don't count shiny new thing as being of real value, when you are starving and thirsty and cold, as any street beggar will tell you (a hot meal and shelter is far more valuable than an I-phone) - is utterly dependent of cheap, in terms of energy and human effort, energy to power the machinery that makes everything else you actually need.

        And low cost free* energy (of which renewable energy so called is not a member) is something we are running out of**.

        Globally.

        If the price of food rockets, because the price of diesel and fertiliser rockets, because both are in fact packaged energy, and furthermore we now have 30 people between farmer and consumer, who all need to be paid more and more to have a decent lifestyle, when it used to be just two or three... then we are in a downward spiral.

        *free in the thermodynamic sense, i.e. at low entropy

        ** except nuclear, which we have a huge amount of left.

    2. Naughtyhorse
      Happy

      Re: Where's Worstall?

      Fight! Fight! Fight! Fight! Fight! Fight! Fight! Fight! Fight! Fight! Fight! Fight! Fight! Fight!

    3. Sebring

      Re: Where's Worstall?

      Actually, no - let's not have Worstall's rebuttal to this.

      No one really needs yet another distorted world view through the prism of the Adam Smith Institute - not even the useful idiots who treat Adam Smith's work as a pick 'n mix counter.

  9. Banksy
    FAIL

    The BBC told me it was fixed?

    I think you're wrong about this because the BBC tells me every day that everything is hunky-dory and that we're better together?

    More seriously at the start of the article you say that economics is broken and fails to spot problems because it is not a correct model and then say at the end that we should teach kids economic principles. Doesn't make sense. I agree with teaching them history though and how economists (largely) failed to point out the impending problems.

    Also as Novex referred to a lot of people didn't start working for themselves. They said they were doing that so they could get working tax credits without being hassled and sanctioned by the Job Centre in order to get their job seekers' allowance pittance.

    1. Vociferous

      Re: The BBC told me it was fixed?

      I think Keynes said words to the effect that 'economics is great at telling you why things went wrong in the past, but useless for telling you what to do in the future'.

      1. Ossi

        Re: The BBC told me it was fixed?

        I think you made that up.

      2. Tom 13

        Re: I think Keynes said words to the effect that

        Keynes was a well-liked, well-lettered idiot. It's politicians who continue to follow his advice that keep screwing things up.

        1. dogged

          Re: I think Keynes said words to the effect that

          Keynes was a very, very smart individual whom politicians have absolutely ignored.

          The central tenet of JMK is to raise taxes during boom years and stash the surplus, then spend the surplus during the recession boosting economic activity and making the cycle shorter.

          Politicians, however, (as seen by the current Conservative+LibDem bunch of incompetents) like to lower taxes during booms (this is called an electoral bribe) and raise them during recession, thus making everything thousands of times worse.

          As for stockpiling a surplus - debt is so much easier.

    2. Anonymous Coward
      Anonymous Coward

      Re: The BBC told me it was fixed?

      The reason that the "economists" didn't point out the emerging financial crisis in the 2000s were, basically, because the ones you were hearing from were being paid not to. Gillian Tett's Fool's Gold is a very readable account.

      I am not an economist, but I am an economic coward with a reasonably good bullshit detector. In 2007 there seemed to be endless TV programs talking up house prices and encouraging people to move. That was a warning sign that things were out of control. By 2008 I was heavily into cash. In 2009 I bought a house for a lot less than the owner paid for it, and I was able to retire 2 years early. And that just, basically, on my grandfather's principle that if banks are offering you high interest rates for your money, this is not because they are awash with cash but because they are getting desperate for liquidity. When I saw Icelandic banks offering 6%, I knew the end was near. It came 6 weeks later.

      1. Alan Brown Silver badge

        Re: The BBC told me it was fixed?

        "In 2007 there seemed to be endless TV programs talking up house prices and encouraging people to move. That was a warning sign that things were out of control. "

        And the cycle is starting up again.

    3. Keef

      Re: The BBC told me it was fixed?

      Dear Banksy,

      You can obviously read and write but you do not seem to be able to comprehend.

      You wrote:

      "More seriously at the start of the article you say that economics is broken and fails to spot problems because it is not a correct model and then say at the end that we should teach kids economic principles. Doesn't make sense"

      Now, let me make this really simple for you:

      The author explains and justifies why economists as we have them are flawed.

      In his conclusion he writes:

      "It’s high time that the principles of economics were incorporated in the school curriculum."

      I do apologise if my reply doesn't make it clear to you how wrong you are, but I hope it has.

  10. glen waverley
    Holmes

    trains and planes ...

    Complex systems ... stop airliners and trains bumping into each other

    Would have to a very complex system. If they have level crossings on the runways in your part of the world.

    1. Diogenes

      Re: trains and planes ... it has happened

      There is the strange story of the collision of Ansett Airways Pty. Ltd.'s Douglas DC-3 (C-47A-25-DK) VH-BZK & a N.S.W. Railways coal train at Kingsford Smith Airport, Mascot, on Sunday 18 June 1950.

      The basics are as follows - At approximately 2000 hours on 18 June, 1950, Ansett Airways' DC-3 taxied into empty coal wagons (which were part of a train consisting of a D50 locomotive, 53 empty coal-wagons & 1 brake-van) on Runway 22 at Kingsford Smith Airport, Sydney. The DC-3 was extensively damaged & five of the empty coal wagons were derailed. Only the DC-3's First Officer received minor injuries.

    2. Alan Brown Silver badge

      Re: trains and planes ...

      "Would have to a very complex system. If they have level crossings on the runways in your part of the world."

      http://www.amusingplanet.com/2013/08/gisborne-airport-runway-with-railway.html

      I've landed on that runway a few times (takeoffs on another one)

  11. Frenchie Lad

    Solutions Please

    Excellent article. However the only solution proposed will take at least 20 years to arrive if it were ever to be implemented.

    I look forward to another article giving suggestions how to ride this economic bronco.

    Thanks

  12. Frenchie Lad

    See Currency Wars

    I need to add that 'Currency Wars' by Song Hongbing is not available in English on Amazon. I wonder why? It contains a extremely good view on how the system has been transformed by a small group of cynical bankers where even the presidents of the US have to toe the line.

    Worthwhile read as it's essentially the same read but from a different stance.

    1. amanfromMars 1 Silver badge

      Re: See Currency Wars

      Cheers, Frenchie Lad, and here be a short précis of that which is not available in English on Amazon

      Currency Wars

      Currency Wars by Song Hongbing[3], also known as The Currency War,[4] is a bestselling book in China, reportedly selling over 200,000 copies in addition to an estimated 400,000 pirated copies in circulation[5][6] and is reportedly being read by many senior level government and business leaders in China.[7] Originally published in 2007 the book gained a resurgence in 2009 and is seen as a prominent exponent of a recently emerged genre labeled "economic nationalist" literature.[7] Another bestselling book within this genre is Unhappy China, however, unlike this and other books within this genre, Currency Wars has been received more positively by the Chinese leadership as its recommendations are seen as less aggressive towards the US.[7] The premise of this book is that Western countries are ultimately controlled by a group of private banks, which, according to the book, runs their central banks. This book uses the claim[citation needed] that the Federal Reserve is a private body to support its role. The book's author correctly predicted a banking crisis in the US in 2008.[citation needed] More than one million copies of this book have been sold.[8]

      In July 2009, the book was followed by a sequel, Currency Wars 2: World of Gold Privilege, published by China Industry and Commerce Publishing House (ISBN 978-9573265214)[9], which The Financial Times reported as being one of the most popular books in China by late 2009.[10]. More than two million copies have been sold.[11] In this book, Song predicted that by 2024, the world's single currency system will mature. He believes that if China can not be dominant in this system, it should not participate, but should be self-hill, have their own sphere of financial influence.[12] This last topic is much more developed in the second sequel.

      In May 2011, Currency Wars 3: Financial High Frontier, a second sequel was published by Yuan-Liou Publishing (ISBN 978-9573267843). It discuss more specifically the modern Chinese History (from Chiang Kai-shek to the depreciation in the long term trend of U.S. dollar) seen from a Currency War perspective. It pushes towards an isolationist financial policy.

      Synopsis

      According to the book, the western countries in general and the US in particular are controlled by a clique of international bankers, which use currency manipulation (hence the title) to gain wealth by first loaning money in USD to developing nations and then shorting their currency. The Japanese Lost decade, the 1997 Asian Financial Crisis, the Latin American financial crisis and others are attributed to this cause. It also claims that the Rothschild Family has the wealth of 5 trillion dollars whereas Bill Gates only has 40 billion dollars.[13]

      Song also is of the opinion that the famous U.S. central bank, the Federal Reserve, is not a department of state functions, but several private banks operated by the private sector, and that these private banks are loyal to the ubiquitous Rothschild family.[14][15][16]

      On June 4, 1963, President Kennedy signed an executive order, which, as an amendment to Executive Order 10289, delegated the authority to issue silver certificates (notes convertible to silver on demand) to the Secretary of the Treasury. Song says the direct consequence was that the Federal Reserve lost its monopoly to control money.

      The book looks back at history and argues that fiat currency itself is a conspiracy; it sees in the abolition of representative currency and the installment of fiat currency a struggle between the "banking clique" and the governments of the western nations, ending in the victory of the former. It advises the Chinese government to keep a vigilant eye on China's currency and instate a representative currency. The book, published in 2007, also correctly described and warned[citation needed] of the various forms of derivative speculation used by Wall Street which eventually became the causes of massive margin call sell offs and stock market crash in late 2008.[citation needed].

      Reception

      The book has achieved bestseller status in China.[10] Although acknowledging the book's huge popularity in China, the Financial Times described it as only passably entertaining and its thesis as far-fetched.[17] Fred Hu, managing director of Goldman Sachs Group, said the currency wars were "non-existent".[18]. He uses in his review words as "a simple out of line, outrageous distortion", "many errors, out of context, far-fetched, exaggerated, or simply speculate, uncertain", and the conclusion to this book as a "melted mixed the ultra-left trend of thought, far-right tendencies, populism, isolationism, anarchism".[19]

      According to Zhang Jiayi, we could think that the "currency wars" series of books' goal in promoting the conspiracy theory is precisely to meet the angry psychology of youth.[20]

      The book has been criticized for promoting antisemitic conspiracy theories.[21] The book says that Jews have been conspiring to covertly influence historical events ranging from the Battle of Waterloo to the assassination of John F. Kennedy, with the intention of increasing their wealth and influence.[22]. In this respect, the material echoes traditional antisemitic conspiracy theories such as The Protocols of the Learned Elders of Zion, The International Jew, and Nazi propaganda like Der Stürmer.[23] This is seen as rather unusual as China is not generally known for antisemitism.

      Several Chinese American scholars also gave the first book negative reviews. Chen Zhiwu (Yale University) first affirmed the reference values of the details the book provided, such as how "what the Rothschild family did, how impacts the financial sector has on a country's development, etc" but he finds the lack of financial expertise makes the author unqualified to prescribe China with future directions. Zhang Xin (University of Toledo/Ohio) finds the book as rich in historical knowledge, of which many he would not be able to analyse, but as a currency and financial system researcher he says, he believes the framework of the book is completely wrong and criticizes the book as lacking in "common sense"

      The author responded to these comment by saying "While many scholars have voiced their objections to this book, they are aimed at the details of the book, not it's logic or structure." [24] ..... http://vnnforum.com/showthread.php?t=144494

  13. Cipher

    Our problems..

    ...lie not in economic theory, but rather in ourselves.

    In the aggregate we vote for people to put in place programs that make government, the least qualified enity, our caretakers. We wish to avoid the pain of doing without the latest shiny object, so we let government administer our retirements rather than saving on our own. They can never deliver on their promises or fullfill our desires...

    When we spill the hot coffee in our lap, we refuse to accept responsibilty, we engage lawyers to make someone else pay. To increase our odds of winning, we elect lawyers to pass laws that make sure we can win these cases, the lawyers are happy to oblige for 33% of the take.

    Society today is the Tragedy of the Commons populated with the tradesmen of Kafka's "An Old Manuscript."

    "The salvation of our fatherland is left to us craftmen and tradespeople, but we are not equal to such a task, nor indeed have we ever claimed to be capable of it. This is a misunderstanding, and it is proving the ruin of us."

    1. Jes.e

      Re: Our problems..

      Regarding that McDonald's hot coffee incident..

      Perhaps you should go out and look at a photo of the resulting burn.

      You cannot unsee that photo.

      And the woman in question was NOT the driver which is always assumed.

      McDonald's had many many many complaints regarding their coffee temperature over the years before this.

      They simply decided it was more important for the coffee to be a good temperature after it had been carried off to work and consumed about 15 minutes later than the safety of individuals.

      Oh. Here you go:

      http://www.google.com/images?q=mcdonalds+coffee+burn+photos&hl=en-US&sa=X&oi=image_result_group

      Please educate yourself. There's even a documentary on the subject.

      Lawsuits are sometimes the only way if you are dealing with an ammoral publicly traded corporation.

      Think of it as a gentle corrective force applied to the warm buttocks of the free market.

  14. David Pollard

    Why the engines on an airliner are set forward

    The wings are flexed by gusts in both directions; that's why you can see them moving up and down during flight. And they are made flexible in order to take the strain. By analogy, this would go to show why floating currencies are better than the euro.

    The forward mounting of the engines is not to balance upwards gusts. If this were so it would make downward gusts worse. Downdrafts can be very strong and are by no means uncommon. Where balance is needed is that at all times when the wing is generating lift drag from the faster movement of air over the upper surface generates torque on the wing as well as lift.

    I don't know whether aircraft designers would be good at economics, but after reading this article I'd now have serious reservations about going in an aeroplane where an economist had anything to do with the design.

    1. Cipher
      Coat

      Re: Why the engines on an airliner are set forward

      What's the old comment about if all the economists in the world were stretched end to end they couldn't reach a conclusion?

    2. h4rm0ny

      Re: Why the engines on an airliner are set forward

      If it reassures, I wouldn't call the author of this article an economist. At least I seriously hope he isn't given the rubbish I've just read. What is his actual background / qualification to write these articles? Give me a Tim Worstall article if El Reg is going to go paddling in Economic Theory. The author of this piece is just grinding their axe.

    3. RPF

      Re: Why the engines on an airliner are set forward

      The engines are set forward of the wings so that if there is an unconfined engine failure, it doesn't wreck the wing. It is a certification requirement.

      I hope the rest of the article is a bit more accurate than that part.....

  15. Anonymous Coward
    Anonymous Coward

    Article is wrong on so many counts

    The cause of the crash was FAS157, an accounting change.

    The reason the crash has been so deep and long is there was/is an incorrect accounting of risk (spreading it out does not reduce it).

    The problem is not in Economics, it is in Accounting, we account for the wrong things and so allocate resources into the wrong places.

    One of the few statements I can agree with is

    'One issue that is glaring is that the average person has no idea about economics on any scale from domestic to national.'

    The author demonstrates his averageness brilliantly.

    1. DougS Silver badge

      And you think your simplistic cause is the correct one?

      So is your position that FAS157 stopped accountants from the shenigans they were using to hide bad balance sheets by requiring better measurements of fair value, so years of accumulated accounting folly all came crashing down?

      Or are you saying that FAS157 itself somehow caused the crash less than a year after it was required to be implemented, even though many of the stresses (like the housing bubble) were occurring long before FAS157 was even contemplated?

      Either way blaming the crash on FAS157 is like blaming the crash of an old rusty car with failing brakes on the fact that the mechanic in the shop you took it to for an oil change filled the tires to their recommended pressure - with no way for him to know they were so worn and had been underfilled for so long they were bound to burst when the first bump was hit on a curve at speed.

      1. Anonymous Coward
        Anonymous Coward

        Re: And you think your simplistic cause is the correct one?

        FAZ157 (mark to market) triggered the crash.

        Before its implementation

        10 houses each worth 100,000 = 1million

        1 defaults and is sold at auction for 75,000

        There are now 9 houses at 100,000 and one at 75,000 = 975,000

        After implementation

        10 houses at 100,000 = 1million

        1 fire sale at 75,000

        Mark assets to Market

        10 houses at 75,000 = 750,000

        250,000 of value has been destroyed at a stroke despite the other nine houses still performing.

        A margin call follows the devaluation and so more assets are liquidated at ever decreasing returns which lowers all values and triggers more margin calls.

        It didn't matter too much at first because the difference in the loan value and resale value was insured.

        Then AIG collapsed under a blizzard of insurance claims and all those full value loans on those rapidly devaluing assets was uninsured.

        The Credit Crunch followed as no one could lend or borrow against an asset that could spiral to 0 value.

        That was why Mark to Market was suspended.

        1. Tom 13

          Re: Mark assets to Market

          This is a key part of the problem. It is made all the more difficult in that neither the old nor the new market valuation techniques are valid. While it is obvious that not all of the houses should be devalued by the amount of the fire sale, it isn't obvious that they should stay at 100,000.

          I think the key issue comes down to, in the current world, accountants are only interested in the instantaneous value of a given thing. The argument being that if any of those other 9 houses need to be liquidated in the same way, the expected sale value would be 75,000. While there is some sense in this, it is not the sum of all sense.

          Sill it was only the proximate cause of the problem. The deeper issue is that the NINJa loans, which have a limited purpose in a functioning economy, were made standard loans for everybody, and the preferred loans for a whole lot of people who should never have been granted loans. While only anecdotal, my own experience is that I was issued too much credit in circumstances where none should have been extended to me. And that wasn't mortgage debt, it was consumer debt. At one point I had more consumer debt than I had annual salary. That was insane. I've worked it down now to the point that it's about 1/3 of my annual salary, but it has taken a long, long time and will likely take another 5 years before it is all paid off.

          1. DougS Silver badge

            Re: Mark assets to Market

            Another problem, in my mind, is the states that don't allow mortgage recourse. It will probably come as a shock to our non-US readers, but certain states in the US (such as California and Florida, epicenters of the housing bubble) don't allow banks to come after a mortgagee's assets if they default. They can take the house, of course, but if that falls $100K short of paying off the mortgage debt they can't come after the $200K you might have sitting in your checking account. You'd take a hit to your credit score for a few years, but that's it.

            NINJA loans encouraged people who had no assets to take on more debt than they could handle, but non-recourse mortgages encourage people with assets to take on debt beyond their means. Particularly for investment properties, such as second/third homes in warm non-recourse states like CA, FL, and AZ.

            Texas is also a non-recourse state, but didn't see a housing bubble. I guess because it is less desirable to "snowbirds" looking for second homes. Other than Texas, the list of non-recourse states matches up well with the states most affected by the housing bubble with the exception of Nevada. That's a recourse state, but saw a big bubble too. Lots of people there with no assets, probably more to blame on NINJA and negative amortization loans.

          2. Anonymous Coward
            Anonymous Coward

            Re: Mark assets to Market

            The People were incidental (but vital), the whole purpose of NINJA and Low Start loans was to inflate the value of the properties, higher property prices means bigger loans which means bigger profits for the banks and bonuses for the salespeople and executives.

            Before M2M a few defaults didn't matter because the value of the remaining assets was rising, non-performing loans were rescheduled at the new higher valuations.

            M2M had the laudible aim of assigning a realistic valuation of an asset (not necessarily property) in the current market so that investors could make sensible decisions, what they didn't see was what would happen to overly inflated asset prices in a disorderly market.

            They also did not believe that an asset could have zero value ('it must be worth something'), in fact an asset (of any class) does not carry the value attribute, value is an attribute of the individual transaction and doesn't tell you anything about what the next identical asset will fetch (as each transaction is a unique market in itself)

            It was inevitable it would go belly up at some point but it was M2M that triggered it.

            What should have happened is all the investors (including you via savings and pensions etc.) should have gone bankrupt and the assets disposed of.

            As to your consumer debt, destroying the interest bearing debt by making payments slows inflation (which the BoE is desperately trying to combat)

    2. ecofeco Silver badge

      Re: Article is wrong on so many counts

      Average you say?

      Forest. Trees.

      See the difference?

  16. J J Carter Silver badge

    http://www.howitends.co.uk/

  17. John Crisp

    The question of infinite/finite resources misses the point the author was making.

    After the crash, as a non economist, I decided to look at why the politicians to a man stood there and banged on about 'growth'. IMHO the author sums it up nicely and sums up my own thoughts nicely. It is a bitter truth, and none of us want to feel we are stupid, but we have been royally mugged off.

    Growth is there to fund politicians spending more than is earned. Banks and companies to more profits. Etc.

    Its not for the benefit of ordinary people.

    The current system doesn't work, and never will, and the people who control it have no vested interest or benefit from changing it.

    So on it will go, ad nauseum, ad infinitum.

    And we are the fools they use they use and abuse.

    I dread to think of the life for my children and granchildren.

    1. Anonymous Coward
      Anonymous Coward

      Try this

      Debt: The First 5000 Years by David Graeber gives you an idea of how the system currently works, why and who benefits (and you are correct, it isn't you)

  18. amanfromMars 1 Silver badge

    A Clarion Voice

    Should you care to be interested in a parallel mirroring view to John Watkinson's, THE DEATH OF ECONOMICS: Aircraft design vs flat-lining financial models, please follow the link provided in this comment on the same similar familiar subject matter.

    amanfromMars 1409211610 … having a say in these interesting times on http://thedailybell.com/editorials/35659/Anthony-Wile-Stay-Alert-in-These-Interesting-Times/

    Interesting times indeed, Anthony, and with new machine controllers in command of the madness with CHAOS .... Clouds Hosting Advanced Operating Systems? Certainly it isn't the past master of the universe types who have any answers with novel solutions. Indeed, they be the problem to be solved and removed from future equations and leading situations with positions of influence and guidance, with the reasons for the change highlighted here ..... http://www.theregister.co.uk/2014/09/21/crawling_from_the_wreckage_essay_the_death_of_economics/

    1. Anonymous Coward
      Anonymous Coward

      Re: A Clarion Voice

      You sound like the spawn of Russell Brand crossed with the computer from Red Dwarf.

  19. stucs201

    Cartoons explain it all

    The economy, especially share dealers and house owners are Wyle E Coyote. They will with regularity walk off cliffs, initially quite sucessfully - enough to get away from where they might grab back on and get back to safety, they'll get to where the only option is a massive and painful plummet.

    When will they fall? When someone fills Roadrunner role (generally with a lot of help from the press) of pointing out that they're in a bad place. At this place panic will set in, breaking the illusion that there is anything under their feet, hastening the fall.

    Like Wyle E Coyote they'll then do the equivalent of buying yet another gadget from ACME, despite having seen the results of every other time thats been tried.

  20. Anonymous Coward
    Anonymous Coward

    The Mission of Banks is to Cause Debt!

    Banks create debt at the jump because the currency we used is based on debt. Today, it is created by someone at a bank sitting down at his computer and typing in a number so that your account is full of non-money. It is just bookkeeping, nothing more.

    Everyone who does anything at all for a living should have a sign posted on his wall that reads: "Its the currency, Stupid!" There is a difference between currency and money. Money serves three functions: it is a store of value; it is a medium of exchange; it is an unit of account. Currencies only serve as mediums of exchange and as units of account.

    All currencies have value by fiat. In other words, anything chosen as a medium of exchange is, by one process or the other, agreed upon insofar as a medium of exchange and as a unit of account. It is the store of value function that presents us with a problem. A currency lacking the ability to serve as a store of value always, by one means or another, ends up being based on less than nothing--in other words--debt.

    Were a government to print or coin every last unit of currency required by its economy and no more, that currency would serve as a store of value. Notice that it does not matter what the currency is made from. It could be anything. It could be printed on paper, coined in any metal, just so long as there is a fixed quantity of it. A currency will serve as a store of value provided that there is a fixed and finite quantity of it. So long as there is a fixed quantity of a currency, it is real money, no matter how common the material it is made from.

    Can bankers and governments be trusted with such an important task? Not according to history. Even gold or any other metal will not ensure that you have a currency that is real money. Ensuring that your currency is real money and remains so, requires YOUR vigiliance. Not just your vigilance, but your children's vigilance, and their children's vigilance, and the vigialnce of the generation after that, and the next generation must be just as vigilant as you were, and so on ad infinitum. Real money is the same as the price of freedom. It demands the eternal vigilance of the peoples enjoying its use, or it vanishes.

    Any currency that is printed on demand or worse, borrowed on demand, is not money. It is naught but debt. That is what is at the root of our fiscal problems now. Our currencies are produced out of thin air as debt owed to the national banks. Said national banks appear to be in private hands--insofar as I have been able to determine. The Federal Reserve Bank of the United States is actually a private concern. It is a goverment sponsored concern, but beyond its creation, it has nothing to do with the United States Government. I suspect the same is true of all central banks. They all issue currencies that stand for the debts owed to them, rather than real money.

    Herein lies the answer and the very heart of our current woes. Governments are allowed to control their own currencies. Very few politicians understand how money works; why money exists or how its value should be controlled. Invariably the polticians have handed the thorny problem of currency management to the people they believed to be the most competent to control currency--bankers.

    As one banker infamously said, "Permit me to issue and control the money of a nation, and I care not who makes its laws!" We handed our freedom over to guess who, the bankers. It is not their fault, it is ours. Our lack of understanding is what has caused this situation. Karl Marx lies at the bottom of most the current confusion, but the number of people who have ever actually understood the nature of money and trade has always been small. Broadening that understanding is the first step back to healthy economies and true freedom.

    1. Vic

      Re: The Mission of Banks is to Cause Debt!

      Banks create debt at the jump because the currency we used is based on debt.

      Except it isn't - not really.

      There's a common belief that Debt is an Asset. And that is why the crashes happen. Debt is, in fact, an expectation of an asset. The value depends entirely on the probability of that debt being realised...

      So we have banks lending to people with no hope whatsoever of paying back the loan. If you believe that Debt = Asset, the bank now has an asset worth what it paid, as well as an ongoing revenue stream from sevicing the debt. All good, right?

      But if you now look at the expectation, the bank's asset is entirely worthless[1], and the ongoing revenue stream merely increases the book value of the asset without increasing the near-zero probability of that asset ever being realised.

      And this is why the banking crash happened - banks threw their money down the toilet whilst paying salesmen to do so. Someone should have paid more attention in Statistics classes. Debt is not synonymous with Asset, so getting customers to take on debt does *not* mean your assets increase. The macho-sounding "Ninja Loan" is a good example of this...

      I have no idea how to tell the bankers of the world that they don't understand money. But someone needs to.

      Vic.

      [1] In the event of a secured loan, such as a mortgage, the value might not decrease to zero, as there is the sale value of the security. But if the loan is secured against, say, a house in a housing bubble, that value doesn't match the debt - and the more reposessions that occur, the more that disparity dominates :-(

      1. Anonymous Coward
        Anonymous Coward

        Re: The Mission of Banks is to Cause Debt!

        It is called "double entry bookkeeping" and without it the bankers would be lost. They should not be loaning money to people who haven't a prayer of paying it back, but they do. Just look at the balance sheet of the United States. No one in their right minds would loan money to an entity with a balance sheet that looks like ours, but then most entities do not have armies and tax collectors. The trouble is, American politicians have borrowed more money than can possibly be collected. They are like the King John in that respect.

        1. Alan Brown Silver badge

          Re: The Mission of Banks is to Cause Debt!

          "They should not be loaning money to people who haven't a prayer of paying it back, but they do."

          When that madness started I was convinced for months that it was an elaborate hoax dreamed up by spammers to separate fools from their money.

          It was, but not dreamed up by spammers.

          By the way, USA mortgage law is different to UK law.

          If the mortgaged house is handed over to the bank in the USA, that is the end of the debt. If the house sells for less than the debt, the bank gets to carry the loss.

          In the UK, if the house sells for less than the debt, you're still in the hole for the remainder.

          This means that in the USA, the SENSIBLE approach to negative equity is to walk away, quickly, whilst in the UK, people hold on in the forlorn hope they might make their money back before they die.

          1. h4rm0ny

            Re: The Mission of Banks is to Cause Debt!

            >>By the way, USA mortgage law is different to UK law. If the mortgaged house is handed over to the bank in the USA, that is the end of the debt. If the house sells for less than the debt, the bank gets to carry the loss."

            SERIOUSLY?!?! How the Hell did that come about? And secondly, why the Hell do American banks not change their lending terms to be the same as in the UK?

            1. Neil Barnes Silver badge

              Re: The Mission of Banks is to Cause Debt!

              Speaking from the UK, the US way is the way it *should* be done: when the bank lends me the money to purchase a house, it should be evaluating the risk of me failing to repay the loan. That risk (averaged over a number of purchasers), plus a bit of profit, should be the interest on the loan.

              If for whatever reason I am unable to repay, and cannot negotiate alternative terms, then the house should revert to the bank but that should be the end of it. If they make a loss at that point, then the bank didn't get its risk calculations correct. It should probably have charged more interest, which would have reduced the price of the house I could afford, or it should have required me to put more cash up front to start with, which would have had the same effect.

              But that would act to stop houses increasing so quickly in 'value', and that would never do, would it?

              1. h4rm0ny

                Re: The Mission of Banks is to Cause Debt!

                >>"Speaking from the UK, the US way is the way it *should* be done: when the bank lends me the money to purchase a house, it should be evaluating the risk of me failing to repay the loan. That risk (averaged over a number of purchasers), plus a bit of profit, should be the interest on the loan."

                If someone asks me to borrow some money and then they can't or wont pay it back, why should I not be able to pursue the money they have taken from me? If I borrowed £50,000 from you and then said you couldn't have it back because the way I'd spent it hadn't worked out how I planned, would you be happy? If not, then why should banks live by a different principle?

                1. Neil Barnes Silver badge

                  Re: The Mission of Banks is to Cause Debt!

                  But that's exactly my point: I'm not asking you to lend me fifty grand unsecured; in a mortgage the debt is theoretically secured by the property. Your duty as the lender is to decide what the risk of my not paying you back is and to charge accordingly; if I fail to pay you get the house and that plus the overpayment should cover your costs - if you calculated the risk properly.

                  But instead, you lend me more than the house is worth, er, currently valued at, on the assumption that the price will rise over time, instead of restricting the loan to a sane value - the value at which you could dump the house on the open market and expect it to sell with some speed. That protects both your investment and my sanity.

                  In days of old, we had repayment mortgages: you took out a loan and every month you paid back a proportion of the capital plus interest; every now and then (depending on the lender) interest was added to the capital. It took some time to get to the stage where you're paying more of the capital than interest, but things were considered a long-term loan.

                  Now we have 'products' where you can be loaned ridiculous multiples of your salary for a mortgage worth more than the house; we have mortgages which repay only the interest and leave you with the entire original loan to repay at the end of the term. How can this ever end well?

                  Of course, the primary reason for houses appreciating is that they're considered an investment vehicle, instead of a machine to keep the rain off. Perhaps there's a way of persuading people that the latter is the correct viewpoint? We could start by shooting all the estate agents, and anyone who makes, appears on, or broadcasts a property/house show on the telly.

          2. LucreLout Silver badge

            Re: The Mission of Banks is to Cause Debt!

            "This means that in the USA, the SENSIBLE approach to negative equity is to walk away, quickly, whilst in the UK, people hold on in the forlorn hope they might make their money back before they die."

            I'm not sure how its forlorn hope? I had a rather nasty bite of the negative equity cherry in this crash, but time has completely bailed me out. Not only has it done so before I die, but it has happened in just 6 years. Year 7 has seen theoretical gains (as in reality I can't seel as I'd have to buy somewhere else so there's no actual profit).

            Profits and losses on housing are only real if you have sell, be it by choice or compulsion. Anything else is just a feeling.

          3. Tom 13

            Re: SENSIBLE approach to negative equity is to walk away, quickly

            Walking away isn't entirely free. You do get bad marks on your credit record which will make it harder for you to borrow money in the future. During the period of the collapse you could walk away more easily than you can now. But they still haven't fixed the root cause of the problem which are the redlining laws.

  21. a pressbutton
    FAIL

    I thought this was the register, not the guardian

    ... and I expected better from el reg.

    "Indefinite growth on a finite planet is not possible."

    well, what 'growth' is is not overly well explained.

    (a) Things will carry on growing (and dying) until the sun goes out.

    (b) If you read some of the post 2000 views on what money is, money is a proxy partly for energy and partly of information complexity.

  22. Anonymous Coward
    Anonymous Coward

    The next crisis will be along shortly

    and this time they are after your pension (they have already secured acces to your savings, Cypress was a template)

    http://www.theautomaticearth.com/debt-rattle-sep-16-2014-subprime-is-back-with-a-vengeance/

    1. ecofeco Silver badge

      Re: The next crisis will be along shortly

      There has a been a recession EVERY decade since at least the 1960s.

      Recovery times have averaged ~6 years.

      The next one will happen before the end of this decade.

      Bank on it. (if you have any spare money, that is)

      This is not a failure of consciousness, conscientiousness or intelligence or will to fix things, it is intentional.

  23. Identity
    Boffin

    An excellent article!

    Despite the brouhaha (especially from the Worstall crowd and those to the right of him [Not long ago, one of Mr. Worstall's commentards declared me an idiot for saying you can't have infinite growth in a finite system, with which even Mr. Worstall apparently agrees, though he niggles about where the limits are.]), Mr. Watkinson has it just about right, with a few niggles.

    That banks create debt is indisputable, but I don't believe it's their sole purpose. They also serve to create and move money (velocity being as important as supply). If I'm a bank and you come to me with $100 (substitute £, if it helps...) for deposit, in this limited example, the money supply is now $100, but then I lend $50 to another party, the money supply is now $150, even though the books balance. And, as one bankster said to me during a small dispute, "I can't sugar coat it: we're a bank — we charge interest!" (Of course, nowadays, they don't pay interest...) Though the movement is largely unidirectional, I suppose, we could say that all money is debt...

    As regards GDP, in this brave new world, the idea of GDP being tied solely to resources and the value added thereupon is outdated. A vast amount of our economy is in services. You can strain language to call it value-added, but frankly you're not adding value, but creating value out of nothing, unless you now want to declare such things as creativity a natural resource. To my mind, that's a step beyond.

    As a last point, we need to rethink economy in relation to traditional care for the aged (etc.). Just as machinery has replaced human and animal labor, so too we will see it in this field. In fact, it's already starting to happen in Japan. When people live longer (even if healthier longer) and reproduction starts to drop (as in Japan), they cannot rely on a good supply of human caregivers, particularly given the limited space in the country and the traditional antipathy (though that's too strong a word, perhaps) to foreign labor. As a result, there is a push on for mechanization. In Africa, which generally is not as technologically developed, disease (AIDS being a prime example) has cause the loss of a vast swath of the population in the prime of life, leaving the young to be cared for by the old. This presents its own difficulties. War and Ebola are not helping.

  24. johnwerneken

    Baloney

    High time myths like democracy, limited resources, and the planet were buried. The purpose of a government is to provide external security, internal order including the protection of property, and a sound currency. None of that requires popularity, let alone elections.

    Elections are part of providing security FROM THE GOVERNMENT that's all they are. NOW they make government MORE dangerous, not less. Not the economists' fault; blame the voters instead. They have forgotten why they are allowed to vote in the first place. It's not so they can gain out of it

    The sun and the solar system have as compared to Earth unlimited resources of energy and of material, including the ability to create environments supporting biology. All it takes is property rights, profit, and will. It is happening. Then there are the multipliers of inter-connection, communication, education, and technology both physical and organizational. The surface here has only been scratched.

    As to the ideology, the general good of the human population and the safety and freedom of the individuals are the purposes of the planet. If the polar bears or the whales are in the way, too bad for them. Likewise for Islam.

    .

    1. Anonymous Coward
      Anonymous Coward

      Re: Baloney

      The problem is who defines the general good, is it you and Karel De Gucht or any other ideologue that supports your view ?

      What if I don't agree, will you steamroller me anyway ?

      http://www.theautomaticearth.com/debt-rattle-sep-19-2014-scotland-and-the-spirit-of-our-time/

  25. ecofeco Silver badge

    Welcome back to the 19th century!

    We, the robber barons, missed you terribly!

    Seriously, nothing new here. Look at Europe during the Medici era. Though technically not monarchs, they were in fact, the rulers of all of Europe. How? They were... bankers.

    All the problems we have today are the same as then: manipulation of power through money to the detriment of the average person and they only finally lost the power after literally centuries of inbreeding. (14th century to 18th century)

    Yes, they were in control during the Renaissance, but it was the Black Plague that directly caused the Renaissance, not the wealth of the Medici, by causing a severe shortage of labor, although the Medici did fund many large and highly visible public projects.

    My point? This ain't first time the human race has danced this dance and short of very nasty upheavals, nothing is going to change it anytime soon.

    But then again, Marie Antoinette didn't understand it either.

    1. amanfromMars 1 Silver badge

      Welcome back to the 19th century ..... 21st century style

      All the problems we have today are the same as then: manipulation of power through money to the detriment of the average person and they only finally lost the power after literally centuries of inbreeding. (14th century to 18th century)

      Yes, they were in control during the Renaissance, but it was the Black Plague that directly caused the Renaissance, not the wealth of the Medici, by causing a severe shortage of labor, although the Medici did fund many large and highly visible public projects.

      My point? This ain't first time the human race has danced this dance and short of very nasty upheavals, nothing is going to change it anytime soon. ..... ecofeco

      I do not agree, ecofeco, that nothing is going to change it anytime soon whenever there is so much madness and mayhem presented for reality to ponder on hourly/daily/weekly.

      The likes of a global internetworking IS group specifically targeting, for prime attention and rough sweet justice, bankers and supporting and war-mongering politicians, rather than anyone else virtually innocent and practically impotent, would change things very quickly indeed. Do you think they be El Reg readers fully understanding of plain talking English?

      Such though is not what you will hear the mainstream media mentioning is where virtual jihad is headed in these most odd and quite peculiar, more informed days with crazy zerodays to exploit and lead tales and forge trails with, although it is something the mainstream media will have to accept is their creation and they have to take full responsibility for ....... and that was real dumb and incredibly stupid of them, isn't it.

  26. JJSmith1950
    Facepalm

    Accountants Are Not Economists...

    John Watkinson just presented an accountants view of economics, in short: he doesn't understand how the economy works. The majority of Government debt is owed by the Government, to the Government. When the Government pays interest on its debt, it pays the money directly to itself. This is because the Government owns the bank it is borrowing from, it chooses the terms of the borrowing, and sets its own interest rate.

    For perspective, both the UK and the US were in worse debt after WW2; they used an economic growth strategy (borrowing to invest in the economy) to shrink the debt relative to GDP, combined with a low interest rate and an elevated inflation rate to eroded the debt, without spending a penny of taxpayers money.

    The big problem we currently face is the indebted consumer. The reason why the World economy has languished is because for the first time ever consumers lack the disposable income to lead the recovery. The "recovery" we are experiencing is fragile because wages aren't matching inflation, consumers are actually getting poorer, in real terms. This is occurring while the wealthy are richer than they ever have been in history. Orders of magnitude richer, thanks to 30+ years of Neoliberal economics.

    The big question is: how do we shift the lumpen wealth accrued by the rich into the hands of the consumer (the people who generate demand, and economic growth)? Unfortunately, ideological baggage of the right wing prevents this question being addressed; just as their ideology prevents us from addressing the issue of climate change. The ideology of Neoliberalism is a big part of the problem, dismantling this pernicious belief system is one of the greatest challenges we face.

  27. WilliamStrauss

    The Myth of Endless Growth

    I have published a book a few years ago on the flawed assumption of endless growth.

    "The Myth of Endless Growth: Exposing Capitalism's Insustainablity"

    It deconstructs modern growth theory by looking at the models and asking what happens both if endless growth is taken to the limit and if the growth assumption is removed.

  28. Jim Lewis

    Alternate economic strategies have been thoroughly researched and proposed

    One example is the Zero Caron Britain report produced by the Centre for Alternative Energy several years ago. Still very viable, but of course entrenched self-interest from those benefitting from the status quo make it difficult to gain traction.

    http://zerocarbonbritain.org/

    And yes, they do reject nuclear as it is a massive drain on society for decades (tens of decades?) and never delivers the bountiful cheap energy it has always promised is just a few years away.

    Back in the 1950s when we needed happy shoppers to drive the economy and deliver us all from grinding poverty and the mess left after the 2nd World War the Marshall plan was a good idea.

    http://en.wikipedia.org/wiki/Marshall_Plan

    Particularly as modern agricultural practices and complete ignorance of the danger of carbon emissions meant there seemed to be no downside.

    Now we know better. GDP has long been maligned as a v misleading tool for measuring 'progress' a good war does wonders for the GDP. Bobby Kennedy bemoaned its limitations as far back as 1968:

    http://www.jfklibrary.org/Research/Research-Aids/Ready-Reference/RFK-Speeches/Remarks-of-Robert-F-Kennedy-at-the-University-of-Kansas-March-18-1968.aspx

    "And this is one of the great tasks of leadership for us, as individuals and citizens this year. But even if we act to erase material poverty, there is another greater task, it is to confront the poverty of satisfaction - purpose and dignity - that afflicts us all. Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product - if we judge the United States of America by that - that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans."

    So yes, the need for a new system is LONG overdue. Crashes and a general deterioration in living standards for us in the developed world are the new normal. Periods of 'growth' as it used to be understood will become fewer and further between and are not the system returning to normal, but unsustainable attempts by those in power to make us believe that is so.

    1. Jes.e

      Re: Alternate economic strategies have been thoroughly researched and proposed

      Thank you for that wonderful Kennedy quote!

      http://www.jfklibrary.org/Research/Research-Aids/Ready-Reference/RFK-Speeches/Remarks-of-Robert-F-Kennedy-at-the-University-of-Kansas-March-18-1968.aspx

      Down votes? Why?

  29. paulc

    Interest rates?

    they daren't put them up as there would be a wave of repossessions and they'd never win an election again... well until the next lot commit a similar heinous crime...

    It was a nasty time bomb left for the Conservatives by Labour...

  30. Zolko

    necessity of growth

    "If there is another fundamental requirement for growth, I don’t know what it is."

    let me help: in our current "western" world, money is created by debt. Thus, all money in circulation has an equivalent in a credit. It's called the fractional reserve system.

    BUT: with each credit also comes its interest, therefore you owe a bank MORE than the credit they gave you. The credit the bank gave you when you took on the debt is money (created out of nothing), but the debt you owe to the bank is made up of the credit and the interest. In other words, there is more debt in the world than money in circulation. The amount of money for the interest needs to be created also, therefore it's also some sort of a new credit.

    Which means that the monetary supply needs to be ever increasing. Which means that the economy also needs to grow for the ratio debt/economy to remain stable.

    Else .... bubbles, inflation, default, war.

    1. Jes.e

      Re: necessity of growth

      To put it the other round..

      If all the debts were paid off everywhere, there would be no money in circulation!

      (technically, a *negitive* amount of money.)

      Maybe Hotblack Desiato's tax accountants could help us out here..

  31. boatsman
    Pint

    excellent.

    fortunately, the USA economy will collapse next year.

    perhaps that will help. (all of europe with a seriously damaged pension perspective or none at all)

  32. codejunky Silver badge

    We should be happy

    We get what we vote for. I had no debt until I recently got a mortgage. I have done everything I can to avoid debt and to pay my way. As Blair/brown went on a spending spree while despising the electorate I argued against their insanity and yet so many people were so willing to vote for them and that wonderful money tree they magically had but never showed. And I laugh as people sit and blame the Tories now for making cuts when even labour were preparing to 'make cuts that would make Thatchers eyes water'. And while I dont consider myself particularly clever I pointed out that it didnt matter who got voted in after the labour scorched earth policies were signed off before they walked out with a smile.

    We get what we vote for. Or what the majority vote for. And I hear how labour might get back in because people dont want cuts, even though everyone knows cuts are necessary. Funnily I have seen labour supporters pointing out that Osborne didnt make enough cuts to make a difference and I am scared to see the unthinking argue for more tax's but not on them. I feel bad for the truly in need in this country because there are so many wanting everything for nothing.

    The shape of politician has moved from characters who some like and some hate but actually have beliefs you can vote for to the current incarnation of plastic and interchangeable with minor variations of pain. And so we have an electorate who wants this, who votes for this, who likes to complain because they only vote for people to complain about. And then they complain there is little choice. Standing back and watching it is funny to watch the people slap their own face then complain someone hit them and they dont understand.

    We want someone who will promise this and that and make us feel richer and give us something for nothing and fix the climate and promise perfect energy supply and not impact our lives. We want someone to punish the people who have more than us because the green eyed monster rules, but we want to claim some sort of moral superiority so we all pay as little tax as we can but lets blame them coz they can afford it. And we want holidays and toys and sweeties and will someone change my nappy etc.

    Look at the guy in the picture. You are rich. You have food and entertainment and even time to form relationships. You have debt because you have earnings and while you want to spend more than you have they will lend to you because you have a hope of paying back. If you waste less and buy less trinkets you could save. And if you voted a gov who didnt throw all your money away and then borrow some more then we wouldnt be in this situation. And at the time of the next election we will see what people do. Will they learn and vote for someone (anyone) they actually believe in or will they vote for the other party who will pat their head and tell them not to worry?

    1. LucreLout Silver badge

      Re: We should be happy

      "Will they learn and vote for someone (anyone) they actually believe in or will they vote for the other party who will pat their head and tell them not to worry?"

      The electorate never learn.

      You could dig up Jimmy Saville, Fred West, and Myra Hindley, pin a red rosette onto them, and Scotland, Wales, and much of Northern England would vote for them. If they promised to splash still more money we don't have on the public sector, most commentards would vote for them too.

      In May 2015, we will find out if we have reached tipping point or not. If labour win, there is truly no way back for England. By the time the next election rolls round in 2020, we'd be back in recession, with an even larger deficit and debt, and the credit rating of Greece. Then you'll see some cuts - public pension defaults, pay cuts, quite possibly coupled with the previously unthinkable - full default and a second labour phone call to the IMF.

  33. kmac499

    Payment by Results

    I would suggest That a common thread running sub prime and the subsequent banking foobar was Payment by results aka commission.. While the mass of we "poor bloody infantry" are paid by the hour. The stellar individuals running or selling on behalf of our comanies are reimbursed, compensated and rewarded on a percentage basis. with no clawback for long term failures.

    Now it doesn't take a Sherlock to realise that if there is no down side, the average sales and chief execs who are almost by definition over confident, self deluding ego maniacs will milk the system for all they can get. i.e they are incentivised to commit fraud whether it be minor or major.

    If commission or payment by results is such a good thing why isn't it the standard in all companies?

    As for economists; I have said before they are not scientists as the do not allow reality to reject their pet theories. I would put their level of knowledge on a par with mediaeval physicians discussing humors or 18thC chemists love of Phlogiston..

    Afterthought : I once worked in a manufacturing company where I jokingly said to one of the salesmen; who consistently sold large volumes of our cheapest product which was a pig to make and reduced the throughput of the factory by 30%. That maybe before we calculated his commission we deducted the increased manufacturing cost. A flash of purple shot across his face and he was not very compimentary..

    1. Tom 13

      Re: why isn't it the standard in all companies?

      Because by and large governments have made it illegal.

      There was a time when a factory worker got paid by the piece produced. Labor law now prohibits that.

  34. endorendil

    Fundamental requirement for growth

    "<cynical suggestion that political considerations are the only reason for growth>. If there is another fundamental requirement for growth, I don’t know what it is."

    There are two. One is population growth. Historically this is a big factor, and for countries where populations still grow, it should be taken into account. The second is rising living standards, and before you get all huffy about raping the planet, living standards include have breathable air, lots of green spaces, good education and ever-improving healthcare.

  35. Fonant

    George Orwell considered endless war to be a very useful way of keeping the need for production, and GDP, going. Wars are most excellent consumers: they need a lot of expensive stuff that mostly gets completely destroyed. If you can persuade your population to be frightened of "terrorism" as well, that gives you the option of snooping on them and bringing in extra laws to add more friction to the endless treadmill of consumerism.

    The root cause is fractional reserve banking: allowing banks to lend people money that doesn't exist, and then charging them interest on the loan, can only mean that the sum of all financial debt tends to infinity. The only winners, so long as they can get away with it for long enough, are the bankers. Which is why the biggest, most expensive buildings in the world are owned by banks, and not engineering firms, or software companies, or schools or hospitals.

  36. Johan Bastiaansen

    The problem with the economy . . .

    Is that it is run by politicians. Politicians are usually people who studied law, or politics, and that makes them the best engineers, architects, bankers, accountants and also economists. So they think. Or so they want us to think.

    A politician knows as much about the economy as you and me, but he wants to make policy, so he looks for an economist who has a theory, a model, a prediction that will allow him to carry out the policy he already intended.

    How do we recognize a economist who is honestly trying to understand the economy and make accurate predictions and one who has a prediction for hire? Well, that is very easy. An honest economist can be wrong sometimes, but he should be right most of the times. So you look at his track record.

    Here's an example of the track record of Paul Krugman: http://www.powerlineblog.com/archives/2005/08/011131.php . And he's just one of the honest economists most politicians try very hard to ignore.

  37. Anonymous Coward
    Anonymous Coward

    The average person isn't very smart. That is a fact of life. I haven't got a statistic and nor would I really trust one, but just basic Pareto would say that 80% of the population aren't smart enough to manage their finances.

    I'm certainly not an economist, but I was easily savvy enough to spot the impending crash - it was ridiculously unsustainable and thus I avoided buying a house in 2007 despite everyone telling me to....everyone predominantly being that 80%

    I have tried to explain basic economic to a group of people who couldn't (And nor did they want to) grasp how the 'money' in their pocket could be fabricated out of nothing. I even showed the the 'Promise to pay the bearer the sum of' and still nothing.

    It was deemed all too complex, but it isn't! It's mind bogglingly simple, just so absolutely daft that people refuse to comprehend.

    Worse, these same people will take whatever credit they can get and do zero real provisioning on whether or not they can afford it. One of the people I was trying to explain this to was just about to take out £3000 finance on a TV at 29.9%APR from Currys!! Just ludicrous, especially when that person was earning sub £15k!

    1. Vic

      just about to take out £3000 finance on a TV at 29.9%APR

      That's nothing. Look at the 4-figure APRs quoted on loans advertised on the telly.

      *Someone* must be taking them out, just to afford all that advertising...

      Vic.

  38. disgruntled yank Silver badge

    consumers

    "A consumer is an entity that is either brainless or brain-washed who works so he can pay tax and uses his net pay to buy brand new commoditised rubbish (oxymoronically called goods) on which he will pay VAT, that allows a manufacturer to make a profit that will be taxed."

    Perhaps The Register's journalists can live on pure self-esteem, in which case they must live very luxuriously indeed. But though not the humblest guy, I do find that some food and drink come in handy, also a roof over my head. All these do require payment and taxes.

  39. perlcat

    What a lovely nutty article.

    While the conclusion that economics is not being treated as a science raises a good point, this loosely edited collection of paranoia and non sequiturs "sense makes none it does, with alacrity and much alarm."

  40. Tree

    Correction: It was the mortgage brokers, not the banks

    The people pushing the neg am loans were independent mortgage brokers who did not work for a lender. Banks who actually hold the notes were not the ones pushing these low start rate loans (at least at the earliest) This was a new phenomenon. Previously, loan officers were employees who brought in business to Banks and S&Ls. Banks generally do not lend to those unlikely to pay off the loan. At the end of the bubble, the banking institutions did follow the competition and did make unsafe loans, but the smart ones sold the notes off to "wall street" instead of taking on the risk.

    Many people who bought houses in those days did so because they thought it would make them rich. The borrowers were sure housing would continue to increase in value. They were willing to borrow in order to pay$200,000 for a property that would soon be worth $300,000. People could qualify for a loan with less income using a neg am than a traditional 30-year fixed.

    The U.S. government also encouraged loans to low income people using "red-lining" rules, that changed the equation to make such lending more likely than before.

    1. Anonymous Coward
      Anonymous Coward

      Re: Correction: It was the mortgage brokers, not the banks

      That may have been true at the start but once the party got started they all wanted (needed) a slice of the pie.

      A bank exists to lend money, the more money it lends the bigger the bank, the bigger the bank the more the CEO gets paid.

      The maximum price a good can sell for is the amount of money the purchaser has at their disposal.

      A mortgage leverages up the maximum amount of money a purchaser can offer.

      Bigger lending = bigger bank = bigger payoff to executives.

      Bigger lending = more risk = crash at some point (it is a pyramid)

      Two strategies

      1. forego some profit by getting out early (traditional) but if you get out too early the shareholders will crucify you

      2. get so big that you become Too Big To Fail (and gamble on .Gov to bail you out)

      Option 1 is a non-starter, would you want to be the (now redundant) CEO who missed out on the big one ?

      Option 2 it is then, M&A between banks reached fever pitch and just before the crash, Lehmans got pushed under the bus. (big enough to pop the balloon, not big enough to be in the Big Boys club)

      It was systemic fraud from start to finish, they knew what they were doing, the precedent was the .Com boom.

      The banks, who for years had been laundering money from drug smugglers to terrorists and the CIA, felt they were impregnable, they had the government over a barrel (because they had colluded in the aforementioned illegalities) and so the government bailed them out.

      The ordinary people will be paying for the banks (and your governments) malfeasence for years.

      It wasn't subprime borrowers, they were just marks[1] who were told that if they could hang in there for a year or two they would make money, by people who deal with money everyday (the banks)

      The banking system is corrupt to the core and it controls the state and the government.

      Good luck with fixing the economics of that.

      [1] the real marks are ordinary taxpayers ie. rising taxes with reducing services.

  41. Anonymous Coward
    Anonymous Coward

    And Here is a Question for Ed Milliband

    Are you going to send Eric Daniels to New York to face charges of laundering money to a terrorist state (Iran) whilst CEO of Lloyds if you become PM ?

    No point in asking Dave, he's just a pillock.(already in a pocket)

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