Is it all really down to greed and corruption?
Economics - - Posted on October, 17 at 11:41 am by Ken L
Perhaps the most imortant role that a leader plays is to make sense of the world: to construct a narrative in which followers can understand what is going on and be confident that the leader will wisely chart a course through future events.
Kevin Rudd appears to have enthusiastically embraced the conservative narrative as told by George W Bush, John McCain and Barack Obama. Consequently his leadership leaves me less than enthused.
The latest chapter in Rudd’s narrative of world events is that the financial crisis is all due to ‘greed’ - other people’s, of course, not his or ours. This puts him squarely in the same camp as McCain (Republican presidential candidate John McCain says Wall Street’s financial turmoil is the result of unchecked corporate greed), Obama (”The financial crisis,” he declares, “is a direct result of the greed and irresponsibility that has dominated Washington and Wall Street for years”) and eminent financial commentator Sarah Palin (“We know that all across America right now, there is a lot of anger, there is frustration, there is anger with…the dealings with lobbyists there in DC, the greed of Wall Street and some of the arrogance of the Washington elite,” she said to a nearly silent group of about 300 donors).
This is populist leadership of the kind that can easily degenerate into demagoguery. The message is clear: there’s nothing wrong with the system, the problems have been caused by bad people. The flaws in such a message are that (1) it’s laughably simplistic and (2) it provides no useful guidelines for dealing with the same problems in future - unless of course one can find a cure for greed, which seems improbable.
Rudd is already demonstrating the blind alley into which this kind of ‘it was all the fault of bad people’ fantasy leads, by implying that the high salary packages paid to bank executives were somehow responsible for the financial crash:
He wants to stamp out companies that offer huge executive salaries for taking huge risks.
“As we contemplate the impact of this financial crisis on real economies, real people and real lives,” he said.
“It must also galvanise us to act in the future that we will never allow greed and lax regulation to put us into this position again.”
Quite how he thinks he can ’stamp out’ private organisations paying their executives whatever they want remains to be seen but whatever he has in mind is guaranteed to lead to unanticipated consequences and is unlikely to do anything to alter our economic system and its propensity to fluctuate through booms and busts. The longer the boom the bigger the bust, as we are about to discover as we come off the longest boom in history.
Politicians would do us all a favour if they stopped this populist nonsense of trying to find someone to blame and explained instead that booms and busts are an inevitable feature of a capitalist system. It’s simply not possible to have an economy growing endlessly at a modest rate, not because of the greed of a handful of bank executives or the irresponsibility of ‘Wall Street’ (whoever that is supposed to be) but because of the greed of the vast majority of the population … except it’s not always called ‘greed’; in gentler times it’s called ‘climbing the ladder of opportunity’ or ‘aspirational nationalism’ and widely hailed as a wonderful thing and the reason post-industrialised countries are so rich compared to all those slothful Africans and South Americans who tend to be content with what they already have and lack competitive market instincts.
The road to wealth is a bumpy one and we’ve just hit a big one. It’s all part of the rough and tumble of economic life. Governments should do what they can to help those badly affected by the crisis, fine tune the system to avoid a recurrence (but be mindful of Ian Macfarlane’s observation that the next recession always comes from a direction you never expected) and stop pretending that everything would have been OK if only a few fat cats hadn’t been so greedy.
Posted in Economics |
October 17th, 2008 at 11:53 am
To be fair, I think the Democratic Party have been quite clear that financial regulation over there needs a major re-work. That’s what Pelosi was saying when the Repubs spat the dum dum in Congress recently.
On the wider point, small d democratic politicians will be able to behave the way you suggest, about 40 years after convincing everyone that excellent secular liberal public education is a basic requirement for a really excellent democracy.
October 17th, 2008 at 12:35 pm
Agree completely about education Sean.
On the regulation point, virtually everyone in politics has spent the last 25 years preaching the virtues of DEregulation, and there’s no doubt that deregulation has been associated with a remarkable increase in wealth. Even after the latest crash, we’re a lot better off on average than we were even 10 years ago.
Re-regulating economic activity will almost certainly restrain economic growth. Rudd seems to want executives only to take small risks - OK, but people need to understand that an aversion to risk is not generally associated with strong economic growth.
What I’m really saying is that the vast majority of Australians have had a great time for the last 15 years and now we have to cop a bit of pain. That’s just the way life is under a capitalist system, which depends on people taking risks. By definition, risky acts will sometimes turn out badly, otherwise they wouldn’t be risky. Pretending that we’re victims of greedy bankers or Wall Street or whatever is neither true nor helpful.
October 17th, 2008 at 12:50 pm
Excellent post Ken.
October 17th, 2008 at 3:22 pm
Ken said:
Not according to most of your commenters. When I say something like this, all hell breaks loose around here.
October 17th, 2008 at 3:32 pm
“Pretending that we’re victims of greedy bankers or Wall Street or whatever is neither true nor helpful.”
I have printed off this little bit of humor and framed it.I will hang it on the lounge wall.
No further elucidation is needed.
You should add to the topic list.
“So called left wingers say the darndest things”
October 17th, 2008 at 6:30 pm
Aversion to risk is just fine by me. I don’t want unrealistic highs followed by shattering lows. A nice steady pace is better. There’s something to be said of reliability and consistency.
Obviously I never understood that “adrenaline rush” thing. Or so-called EXTREME sports.
Oh… and I assume this “reality check” aimed at the punters runs parallel to a rejection of corporate welfare?
October 17th, 2008 at 7:00 pm
Trouble is mars you seem to be in a distinct minority. I don’t recall a chorus of complaint in recent years that people’s houses were overvalued, or that their super was increasing too quickly and really they’d prefer 5 or 6% per annum thanks.
Many people increased their notional wealth hugely by doing nothing at all; house prices doubled and then doubled again and super went up by 15% or more every year, for years. This wasn’t due to the slightest expenditure of effort or intelligence on the part of the beneficiaries; it was sheer blind luck. People can’t accept the good bits of capitalism uncomplainingly and then claim it stinks when things go pear shaped for a while.
October 17th, 2008 at 8:40 pm
“Even after the latest crash, we’re a lot better off on average than we were even 10 years ago.”
Are you sure, Ken?
Maybe for the past few years. But I’m not sure how you’d measure that going back a few DECADES. What do you include in the balance sheet?
Housing affordability?
Personal debt?
Cost of raising children?
Trade deficit vs GDP
Carbon emissions?
How many Australians needed a credit card to survive back in 1955?
Certainly DVD players are far cheaper today than they were back then!
I really can’t be bothered doing the research. All I’m saying is that you’ve made a big call.
October 17th, 2008 at 8:55 pm
I haven’t made a call of any kind mars, I’m simply stating well-established data. See here for example.
Nobody needs a credit card to survive in 2008. I get by perfectly well without one, as do many other people.
October 17th, 2008 at 9:32 pm
KenL- “really they’d prefer 5 or 6% per annum..” Actually, I would have preferred that but then I’m taxed on the interest which, including inflation means zero. I resented having my money in Super used for activities that were anathema but I’ve had the come-uppance now. I shoulod have payed the tax and at least kept the capital.
October 17th, 2008 at 9:41 pm
I do recall a chorus of complaint in recent years that peoples’ houses were overpriced. “Housing affordability crisis”.
You’re also conflating risk like:
1) “this mine may or may not have good enough ore to be profitable” or “this concept-stage useful widget may or may not be economic to mass produce”,
with
2)”lets buy a trillion dollars of derivatives the very basis of which we don’t even comprehend, with people’s superannuation, which might otherwise be invested in some useful enterprise, cause it’ll look good on paper for a while and we can pay ourselves $400 million dollar salaries, again essentially with other peoples’ super, then hopefully fuck off before the heat comes down.”
I’m happy to call it greed and to say that it is wrong, bad, unecessary, destructive, unrelated to the creation of actual lasting prosperity, etc. Just because you’re a capitalist doesn’t mean you have to piss other people’s capital against the wall.
We’re better off for a number of reasons, including continued mining, opening our economy to the world, increases in productivity, selling real actual stuff to China et al, and our enforced save-for-your-retirement regime, some of which savings are invested in enterprises which create real wealth.
It has nothing to do with greedy halfwits who managed to destroy century old banks which survived the great depression.
October 17th, 2008 at 10:10 pm
The capital never existed except as an abstract construct. The risk-takers created it and then they destroyed it, so we’re back where we started more or less. Anyone who thought the doubling or tripling of their house’s ‘value’ represented a tangible, genuine increase in their capital should have known better. Where on earth did they think all this ‘capital’ was coming from, if not from creative book-keeping? Same with super - how did any halfway informed person think returns of 10-15-20% per annum were sustainable? Did they really think capital can grow out of thin air?
October 17th, 2008 at 10:15 pm
“I do recall a chorus of complaint in recent years that peoples’ houses were overpriced. “Housing affordability crisis”.”
So do I, and I was one of them. To say we are materially better off than ten years ago is abject rubbish.Young people today can’t afford housing it’s as simple as that.
My daughter needs two fucking jobs to go to Uni that’s just for the books.You need a fucking mortgage to get your teeth fixed, and a lot of people who are sick can’t pay for specialist.
It takes more of peoples weekly income to buy a house than ever before to deny this is bollicks.Of course my house which is worth a fortune on todays market, I am going to sell and have the money put in my coffin.Or failing that, my kids can have it to buy a house when they’re fifty.
Kids to afford rentals have to sleep three to a bed, with some fuckers toes tucked up under their chin.
And the financial melt down wasn’t caused by greed,No half the fucking pundits have got it all wrong, most are blaming this on fucking greed alright!what fucking planet do you live on Ken L?
October 17th, 2008 at 10:16 pm
Ken… if I’m reading that ABS doco correctly Australian households have become more debt ridden
And I think you are using the literal definition of “survive”. We both know it’s relative.
BTW. Does anyone else clench their fists when they hear the phrase “wealth creation” thrown around?
October 17th, 2008 at 10:38 pm
Mars the ratio of debt to assets has increased but so has the ratio of net worth to annual income. People on average are more indebted now than in 1991 as a proportion of their income but their net worth has also increased as a proportion of their income - in other words their absolute wealth has increased about 3.5 times but the net worth has increased by a factor of less than 2 because they have increased their debt levels. It’s still a very substantial increase in wealth, however it’s measured.
These are average figures of course. Many people will have done better and a lot will have done worse.
Phill if you’re convinced the crisis has been caused by greed, perhaps you can explain exactly how that has worked. Use of the word ‘fucking’ a lot to convey your righteous indignation does not count as logical argument.
October 17th, 2008 at 11:08 pm
But they’re counting “residential real estate” as an asset. And you agree that house values have been insane recently.
I’m going with the greedy AND lazy explanation. Not just the Wall Street wankers. I’m including everyone who wanted to believe in the magic pudding boom.
October 17th, 2008 at 11:41 pm
Phill said:
As an owner of the same rental unit for over 30 years now I can confidently tell you that rents - at least in Canberra - have rarely ever kept up with inflation. We are getting only 4 times the rent ($190 pw now vs $45 then for a 1 bedroom unit) despite plenty spent on improvements.
Another property we have (2 br) was getting $160pw ten years ago and now gets $310. This is in a good area and a tight rental market, so I always take people who insist that rents are ’sky high’ with a grain of salt - for the most part they are clueless. Hmm - what rhymes with clueless
October 17th, 2008 at 11:52 pm
“Use of the word ‘fucking’ a lot to convey your righteous indignation does not count as logical argument.”
Hey Ken don’t get all righteous on me,I just copy a trend, fuck is a term used quite liberally by your good self in many of your tirades.
One does not have to explain how greed was an element in the financial crash, it is quite obvious that the bankers and other shysters on Wall St “where greed is good” that’s their logo.To deny that greed is a major driver in the workings of Wall St and other big corporations is to border on delusion.
Have you ever heard of Alan Bond?
so what do you want, links to others opinions about the kick backs on mortgages, how the derivitives markets work, how the housing bubble was created, the dot com boom etc etc etc?
How bank and finance company’s were flogging real estate to the poor, knowing bloody full well they couldn’t pay it back.Just to get their commission on the sale, and then on selling the instruments to other company’s?
Ring up Alan Greenspan he’ll tell ya, Yea right!
The CEO’s of AIG have already been sprung living it up on the tax payers bail out, so what’s that then good investment practices?
Where are you getting your statistics about “we have never had it so good?
An accurate analysis of what went wrong on Wall St, would take economists that usually get paid gazillions for their opinions ten years to come up with something that will past the smell test.
So Phill who knows about as much about the economy as you do, will go with the majority of people who in some cases are economists, and sum it up with one word GREED.
October 18th, 2008 at 12:15 am
And the white trash in the “They’re not racist, but…” discussion aren’t racist. After careful consideration of Obama’s policies they find him an unworthy candidate.
October 18th, 2008 at 12:33 am
Ken you confuse capital and dividend. Whether the rate of return was sustainable or not (not), the fact remains that 9% of wages + employee contributions is available for investment. Clearly large chunks of it has not been invested wisely. It is nevertheless no more abstract than money generally. Nor is the extra money in our economy from the resources boom.
October 18th, 2008 at 2:16 am
“Another property we have (2 br) was getting $160pw ten years ago and now gets $310. This is in a good area and a tight rental market, so I always take people who insist that rents are ’sky high’ with a grain of salt - for the most part they are clueless. Hmm - what rhymes with clueless :-)”
Ah very good Pete your improving. Your a regular entrepreneur Pete, all that property, my my, maybe you should get a few sheep to graze on the front lawns, or put in carrots or something..And improvements!What did you do Pete, put in 100 watt globes in the lounge or somthin?
And in a good area ta boot, I bet there’s no niggers in your street Pete,shit sorry we’re talking about the rental, only poor people in them, they are probably boat people.No wrong again it’s the nouveau rich, your flats probably full of Chippendale Furniture or such like.
Please Pete, save it, I’v got you sussed mate.
The only flat you’ve ever had is probably on the Datsun 120 Y you drive to work.Sorry it’s probably a VC Commodore.
October 18th, 2008 at 3:11 am
” or the most part they are clueless. Hmm - what rhymes with clueless :-)”
Pete the Landlord had to rightly confess
His knowledge of politics was totally clueless
He tried to make his talking points stick
But as usual old Pete played with his dick.
October 18th, 2008 at 8:12 am
18th oct 08
Ken, I’ve outlined previously how certain characters helped orchestrate this event. I don’t intend to do so again. People only need read thru the Road To Surfdom archives. Or search engine ‘nasking’. A number of us warned in detail about these very events & gave various reasons as to why they would occur & who was largely responsible.
Imo, you are coming across as defending the CRIMINALS & CON-ARTISTS similar to that hand puppet Ray Martin who is calling for the “return of the moguls” as tho they ever went away. It was Murdoch & Packer’s media that helped get us into this CRISIS in the first place…hyping the housing sector & war.
As far as I’m concerned, the various governments need to come down hard on the TV broadcasters & their news & business channels (many on the internet now) who are defending THE GUILTY, putting out HYPED BS in order to gain attention (ratings…bogus anyway) & advertisers (less by the day thank goodness)…and as usual promoting FEAR, DIVISION & causing more public confusion, chaos & uncertainty.
The relevant authorities MUST pursue the CRIMINALS & in turn governments need to be as honest & firm w/ their populations as possible…& use the latest events to explain & implement plans to create an ENERGY REVOLUTION.
And in this Asia-Pacific region build a GRAND railway (perhaps Maglev trains?) w/ huge bridges & use of special ferries to connect Australasia to the rest of Asia including China, Japan & India. Think a budget Orient Express but providing tickets to anywhere like a Eurail pass.
It’s essential that we have huge, motivating projects for the public to focus on…create bridges between nations that will be & are struggling. As Obama says “spread the wealth around”. Open youthful eyes to the other UNIQUE cultures…exchange ideas…& work.
The Japanese, Sth Koreans & Chinese need to integrate more & use each others skills in order to ramp up manufacturing again…& in tandem w/ major “fair-go” social reforms China might be able to transform itself back into a TRUSTED ENGINE.
Israel & Palestine must also do same. Create a special industrial area. I know an Israeli businessman tried to similar a few years ago.
John McCain acting like a kooky Romulan outa Star Trek doesn’t inspire.
Obama MUST win. He has the gravitas, cool head & ability to take on new & bold ideas & articulate them.
I will eat at Pizza Hut today, & subscribe for one more year w/ Emusic in order to demonstrate that I believe an America under Obama can be a worthwhile, inspiring nation. Even tho I’m angry w/ a number of American corporate heads & execs…& politicians…& media moguls…I will not contribute to a ban on American goods. I have no intention of acting like a divisive, petulant adolescent like Bill O’Reilly who, it is said, promoted “Freedom Fries” & called for a boycott of French goods because they would not join in on the INVASION of Iraq.
We must be imaginative, bold, cool-headed & practical in our approach to dealing w/ the present crisis. And end conflict & war. The metals & moneys of weaponry need to be used for inspiring, innovative projects. As do the muscles that are presently being used to keep the war machines rolling.
PEACE AND BOLD, INNOVATIVE PROJECTS NOW
N’
October 18th, 2008 at 9:30 am
Thank goodness for negative gearing
October 18th, 2008 at 10:27 am
Yes true mars, and if house prices here collapse the way they have in much of the USA, lots of people really will be back where they were 15 years ago. However that hasn’t happened yet, which is not to say it won’t of course.
Sean where else were super funds supposed to invest? Imagine the outcry if they had adopted a highly conservative investment policy and had been getting 4 - 5% returns for the last few years when the stock-market was roaring along at four times that rate.
In any event super members have the option of putting their funds in a capital guaranteed account, where they wouldn’t risk losing a cent of their contributions unless the whole fund went belly up. I suspect not many did so.
It remains true that the value of super accounts is an abstract concept based on actuaries’ calculations of what the investments are worth in the market. As we have seen in recent months, that valuation can vary wildly without any change in the ‘real’ value of the assets that underpin the investments, which can be calculated by reference to their potential to generate income.
Paul Krugman gives a good overview of the background to the recession here. In summary, people at all levels of the economy have been trying to maximise their material wellbeing, which is not only what most economic theory says they do but also what most supporters of the capitalist system from Adam Smith on say they ought to do. You can call it greed if you like but I don’t see how it contributes anything constructive to the discussion; moreover the use of such a pejorative term implies a moral superiority on the part of the person using it that on the facts can seldom be justified.
October 18th, 2008 at 10:54 am
“You can call it greed if you like…”
Thank you. I will continue to do so.
Now about falling for the “let’s not play the blame game” cop-out…
October 18th, 2008 at 11:15 am
Christ you’re an angry old fart Phill. You should chill out. Really that was quite disgusting and not true at all.
It’s interesting that you are entirely unable to refute my claim that - at least in Canberra - rents are really no higher than 30 years ago. Canberra is fairly typical often coming out as having the highest rents (it seems to alternate between us and Sydney/Melbourne). So you resort to the smear instead.
And just to set the record straight we have had a ‘nigger’, as you so nicely put it, in our flat. The flat is attached to our house so he lived right next to us - the horror, the horror. We’ve also had ’slanty eyes’ (as you no doubt call them) living there too.
I also drive a Holden Astra.
October 18th, 2008 at 1:26 pm
Greed is surely self-interest taken beyond healthy limits? It’s a fine line - one man’s healthy self-interest is another man’s greed.
Today I read again of the hundreds of journalists being sacked from Fairfax. The core business of newspapers was once journalism supported by advertising. Now Fairfax is operating on advertising as the core business, supported by whatever minimal journalism they can get away with. The imperative is profit for the shareholders.
Back in the early 90s canned fruit producers SPC were taken over by a US company. If I remember correctly, a plant was closed at Shepparton with the consequent loss of jobs and economic ripple effect throughout the community. Why was it closed? Because it wasn’t making money? No. It was closed because the profit level was only some 3.5 percent per anumm - amounting to some $millions each year. Profit was being made, livelihoods and a regional farming community were being supported. The problem was that 3.5 percent was no longer sufficient to meet the expectations of shareholders, who routinely expect in the order of 10% return. The plant was closed so the fund could be invested elsewhere with a higher rate of return.
I would call this greed when all is said and done. How the hell can people realistically expect economic growth to return 10-15% per annum? Sustainability, anyone?
October 18th, 2008 at 2:55 pm
“or the most part they are clueless. Hmm - what rhymes with clueless :-)”
Peter.The above remark was directed at me so spare me your hurt feelings. If you want to push my buttons, that’s the result.In most quarters it would be regarded as a bit of humor,and that was the spirit it was put.
As for rent in Canberra. Look Pete I lived in Canberra when I was with the Army,so don’t insult my intelligence and tell me rents haven’t gone up in thirty years, please.
I am not going to change my mind on issues because other people on this blog who like to throw in a few esoteric words, have been to Uni,think they know everything, and have an air of superiority.
My decision to voice my opinion did not come as a dream in the night,I wasn’t taking a shit when a light bulb went off in my head.I like most people, gathered up the opinions of others, crunched the information in my own head, and voila! another opinion.
Just like you did Pete, insulting aint it, are you getting the drift here?
So Pete one more time.G-R-E-E-D AND MORE G-R-E-E-D was the main cause of the melt down in the financial world.
And nothing you or anyone else says on this blog is gonna change that fact.Just like “Global Warming” sceptics, only I’m going with the majority who believe it, there.
October 18th, 2008 at 3:03 pm
Yes Slim it is a fine line, which is why I don’t think it serves much purpose taking a moralistic attitude. Politicians accuse others of greed, as if they themselves are pillars of selfless virtue? Hmmm.
They would do better to try to educate people about the cyclical nature of a capitalist economy, remind everyone that the sky hasn’t fallen in, and encourage a bit of balanced perspective instead of the obsessive short-termism that’s afflicted our economic outlook for years … a climate in which weekly movements in interest rates and property prices are the tediously incessant topics of conversation and media stories.
October 18th, 2008 at 3:39 pm
Phill,
I don’t object to humor and really don’t care what you call me. I even thought your limerick about me the other week was mildly funny. However that bit about ‘niggers’ was beyond the pale.
October 18th, 2008 at 3:52 pm
“However that bit about “niggers” was beyond the pale.
Lighten up Pete, there is nothing wrong with niggers.The one I own is a good driver, and makes fried chicken to die for.
Just joking Pete,just joking.
October 18th, 2008 at 3:56 pm
Taking an amoral attitude hasn’t done us much good either.
October 18th, 2008 at 4:56 pm
Announcements made various governments and organisations in recent days should have provided the psychological shove to get things moving again (or at least stop the backsliding). People should have latched no to these incentives like a drowning man to a duck. Yet all we saw were a few hours of positive market activity.
I wonder if that’s because big money has finally realised that there’s some fundamental flaws in the way the system has been played.
October 18th, 2008 at 8:57 pm
Adam Smith is just a dead bloke Ken.
You’ve described people being dopes, taking real & hard earned money and “investing” it in worthless derivatives. The fact that it happened doesn’t make it fate.
I suppose your attitude is that you can’t expect people to eat healthily when several other people are having a bowl of white sugar for breakfast?
As for moralism, well whatever. I’m not calling for them to be burnt at the stake, just for clear lessons to be learned. We’ve discussed elsewhere that several of us with less financial expertise saw this coming and have set ourselves up appropriately. If I as a solicitor was that irresponsible with some bastard’s trust money, I’d be struck off by a collection of angry (and very moralistic sounding) Supreme Court judges.