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Economics and the Greek question.
Posted by Lenny Law on 23 June 2011 - 11:11pm.
Give them a loan to, insanely, help them pay the interest on the other loans they can't repay or let them go bankrupt and to hell with the potentially ruinous consequences?
Some highly-qualified economists will argue for the first, others for the second. Who is right?
No-one knows. Economics is a science (of a sort) which seems only to work in hindsight. And, whichever option is taken in any given situation, we never really know if it was the correct one. It is a bizarre academic discipline when the opinion of the most ill-informed man on the street can have as much chance of being correct as that of a garlanded expert.
And the underlying trend remains, as ever, upwards. Because it has to.
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Was it George Bernard Shaw who said...
..."If you laid all the economists in the world from end to end, you wouldn't even come to a conclusion"?
Following the banking crisis I attempted to read some economics primers in the hope of being informed on this subject.
I completely failed. I cannot make head nor tail of this stuff.
Don't worry...
neither can economists.
I'm like you, by the way, haven't got a clue...
The frightening thing is that the nature of investment
banking is such that some funds have gigantic positions that are predicated on the Greek economy getting worse. They're betting their and their clients wealth on a country going down the pan. I'm a dyed in the wool capitalist but I draw the line well in front of this situation. In fact, I think there should be a ban on short selling, full stop. There is something morally reprehensible about a wealthy minority getting even richer at the expense of not just entire companies but entire countries.
It's not that simple
What you call short selling, others call insurance. Anyway, the idea that this - or the last - crisis was caused by short selling is a myth. If you read "The Big Short" by Michael Lewis (and it's an excellent read) it's clear that most of those who got rich selling short were outsiders taking a bet (correctly) that the US housing market was grotesquely over-valued.
I agree it's not that simple
and I'm not suggesting that short selling caused the crisis, which was a complicated mix of things going awry - especially derivatives which very, very few people really understand. My view is simply that short selling is (despite what the regulators tell us) too prone to manipulation and too likely to cause systemic damage when things get sticky.
Personally, I'd like to see a separation of retail and investment banking so that people who want a safe home for their money can put it in retail (which probably means charging for everyday banking services) and get a modest return while people who want big returns and are prepared to lose their shirt can go for the investment side. I know that's a rather simplistic view of things but I think we have to stop the possibility of big risk takers wrecking the system in the full knowledge they'll be bailed out because that system simply can't be allowed to fail.
I had a post all ready to go on this
relating to how the clusterfuck (largely, I might add, down to the stupid stupid stupid mistakes and shortsightedness of my own compatriots) is screwing up things rightly in Ireland but found it just made my head spin as I tried to find a good concluding point.
Suffice it to say, Economics truly is the dismal science; come to think of it, that's not even the shaggin' half of it...
Millions and Billions and Trillions
I read something a while back that helped me to get my head around these enormous (and to most people, meaningless) numbers that get banded around, by relating them to time
One million seconds is about 11.5 days
One billion seconds is about 32 years
A trillion (UK National debt currently about 0.93 trillion) - ladies and gentlemen, I give you :-
32,000 years
One armed economist...
I think it was President Truman who was heard to say, in some exasperation "Find me a one armed economist!". When asked why, he replied "Because I'm fed up of them saying, well on the one hand this, but on the other hand that".
In defence of my fellow economists, this really is a difficult one. I would never claim that economics is a science. Events happen because of countless human decisions (which may, or may not, be rational) made against a backdrop of constantly shifting and evolving events. You simply cannot predict with any degree of certainty what will happen.
We are now in uncharted territory. As a student I was always taught that countries could not go bankrupt. Clearly this no longer applies! What little I do know leads to me conclude that the outcome is not good whatever happens. It's all about hoping for the least worst outcome, and that is - well, on the one hand...
Panel Show and TV hosts
Lenny, you're asking the wrong people here.
What you need to do to get to heart of the matter is follow the BBC's wise decision and ask a panel show expert, David Mitchell, and queen of the makeovers, Fern Britten (or Firm Bosoms as my Dad likes to call her) what they would do about the bail-out and Greece.
half right
I saw about a minute of Question Time. David Mitchell is a smart guy, and often has quite interesting opionions - a well informed man from the street you might say. The politicians all had their own line to push (you know what John Redwood is going to say before he opens his mouth. Same for many of them). But Fern Britten?! Clearly she has no idea, and there is no reason why she should. Why two celebs on one programme? I see that David Mitchell has no idea either. Gordon Bennett.
My view - Greece should never have been let into the Euro, but it was. And now we all have to deal with the consequences. Letting them go bankrupt is like letting your house burn down to teach your kids that they shouldn't put a lit match in the kitchen bin. The lesson is learnt, but you pay a high price for the lesson (and I do mean us and not just the Greeks - our recovering banks would get stung, Ireland and Spain would be next in line, confidence would drop even further etc. etc.)
To be fair to John Redwood, and I never thought I would be - the case for not joining the Euro has been proven. At least for a generation or so.
I share your exasperation, Jo...
...I switched on in the middle of last night's Question Time and - dear God - there they were: Mitchell and Britton feigning/trying to have answers that anyone would want to hear.
Next week on Question Time: the Chuckle Brothers, Paul Gascoigne, Francis Rossi and Plastic Bertrand will be furrowing their brows and discussing the major questions of the day.
Pointless, trivial, absurd and clearly now beyond parody.
We are only at the beginning of this economic
crisis and it seems nobody has a clue how to put things right. All solutions to the Greek problem are wrong but letting them default would at least bring problems to a head rather than delaying the inevitable.
There is too much "money" in the world economy that does not exist because it has been created out of financial instruments that nobody was brave enough to admit they didn't understand. John Lanchester's book "Whoops" is excellent on this.
I don't pretend to have any answers to the problems but I think the solutions are so radical that governments aren't prepared to suggest them and there is a real possibility of anarchy breaking out within the next 10 years.
An economics lecturer of mine in the late 70s warned that an explosion of credit would lead us into "Cloud Cuckoo Land" - he has been proven remarkably far sighted.
Whoops
I thought that book was excellent too. I didn't know whether to laugh or cry though...
Just to emphasise my point..
"An economics lecturer of mine in the late 70s warned that an explosion of credit would lead us into "Cloud Cuckoo Land" - he has been proven remarkably far sighted."
Lots of economics lecturers have forseen lots of outcomes.
Retrospectively, someone ALWAYS gets it right. For every one who gets it right, one gets it wrong. Start with 1000 economists and, as time goes by, the number who call it right at every turn will reduce geometrically. And, by the end, no-one will know who's right because the ones who're good at getting it right will already have retired as extroardinarily wealthy people.
"I don't pretend to have any answers to the problems but I think the solutions are so radical that governments aren't prepared to suggest them and there is a real possibility of anarchy breaking out within the next 10 years."
This, I think, holds water. Not generalised anarchy, but on a small-nation basis, yes. Greece has it coming. Tax-shy, work-shy, overly reliant on a state system which has run out of money, who knows what might happen?
There again, what the hell do I know?
Information only
I think the best economists report on all the available and relevant information and then interpret what it all means, right now, in an even-handed way. If it is presented well, and you can see the source data, you can make your own judgements. But you do need an economist to explain why certain data releases from the Fed are important and why these might affect us.
However, I don't look to economists for predictions because that would turn the economist into one who holds opinions, and that can be dangerous. Just like everyone, vanity encroaches on judgement. If they commit to opinion-based positions, they will have the skill to convincingly select and align data to back up what they have said, to prove they are right. They say you can prove anything with statistics and opinionated economists are very, very good at that. If they're on the telly too much and seem to enjoy the attention, take what they say with a pinch of salt. That's my philosophy Marty.