Thoughts?
http://michael-hudson.com/2012/04/productivity-the-miracle-of-compound-interest-and-poverty/
"The problem is that income used to pay debts cannot simultaneously be used to buy the goods and services that labor produces. So when wages and living standards do not rise, how are producers to sell – unless they find new markets abroad? The gains have been siphoned off by finance. And the financial dynamic ends up in austerity. And to make matters worse, it is not the fat that is cut. The fat is the financial sector. What is cut is the bone: the industrial sector. So when writers refer to a post-industrial economy led by the banks, they imply deindustrialization. And for you it means unemployment and lower wages."
That piece was confused to the point of actually being confusing. Granted I stopped reading and started skimming about halfway through, I could not find a real thesis in the article. The only one I can come up with is "the fruits of increased productivity have been siphoned off by 'finance' because people go into debt to buy the products they make." One of the main problems I have with this is he doesn't make it very clear what exactly it is he's claiming in the specifics...much less what he's saying should be done about it or why any of this occurred. It's possible I missed it, but I didn't really see any explanation offered as to a "why" or a "what to do".
And I would be interested to hear his explanation of where all this money came from to put all these people in the debt that forces them to "have to work so much harder than before, even when wages rise [...] to carry [their] debt overhead".
He states:
"You’re unable to buy the goods you produce because you need to pay your bankers. And the only way that you can barely maintain your living standards is to borrow even more. This means having to pay back even more in years to come.
That is the Eurozone plan in a nutshell for its economic future. It is a financial plan that is replacing industrial capitalism – with finance capitalism.
Industrial capitalism was based on increasing production and expanding markets. Industrialists were supposed to use their profits to build more factories, buy more machinery and hire more labor. But this is not what happens under finance capitalism. Banks lend out their receipt of interest, fees and penalties (which now yield credit card companies as much as interest) in new loans."
Again, maybe I missed something, but I didn't see where he explained how there could be all this production and still so much debt. He basically does like Keynesians and progressives do and just starts the story in the middle, kind of like this "balance sheet recession" guy does.
He mentions nothing of money supply or the Federal Reserve. Indeed the only mention of the central bank is in a quick passing comment about how "Overseas military spending obliged the Federal Reserve to raise interest rates to borrow abroad to prevent the dollar’s exchange rate from declining."
My only guess as to why this might be is because he's an MMTer, and sees money manipulation as a tool for prosperity as opposed to the engine of destruction that it actually is.
The piece is not 100% fallacy, there are some things that are correct, but there are so many landmines that could not only confuse the reader, but actually mislead him and give him false understandings, it's really not worth reading.
in a word: ignoramus.
My humble blog
It's easy to refute an argument if you first misrepresent it. William Keizer
Even if we assume their premises of all consuming debt which people tend to get into, we can solve this whole problem with two words:
PRICE FLEXIBILITY
It's one of the most important facts about a free market, but it seems to be the term thrown around by free market supporters the least.
There is no miracle of compound interest, that is, except for the miracle of the central banks compounding of the money supply. There is nothing miraculous about investment speculation, it's a myth created by the financial industry itself.
Clayton -
What about the "miracle" of compound growth, Clayton?
The keyboard is mightier than the gun.
Non parit potestas ipsius auctoritatem.
Voluntaryism Forum
@Autolykos: I always thought that was a synonym. How is growth different from an interest rate?
Neodoxy:Even if we assume their premises of all consuming debt which people tend to get into, we can solve this whole problem with two words: PRICE FLEXIBILITY It's one of the most important facts about a free market, but it seems to be the term thrown around by free market supporters the least.
That. ^
Even though it's kind of obvious, a lot of people, even educated economists, seem to think that the price of a good is some objective, inflexible enumeration of it's value, instead of just an allocation mechanism. I think it's an old hunter-gatherer instinct. Humans evolved in a setting where it was very useful to have an intuitive sense of the objective value of objects. This instinct doesn't apply in a world of market pricing any more, but it's still haunting the species.
Note that objective exchange value does exist and I think this is the basis of the confusion that a lot of people have about STV. We know that the price of every good is the result of consumer demand and producer supply of that good and it is also affected by every other price in the market (economic substitution).
Let's say that an orange costs $2 and an apple costs $1 and let's say you prefer oranges to apples. Let's say you won a fruit-basket raffle and you get to choose among three combinations: a) 3 apples and an orange b) 2 oranges or c) 7 apples. Which would you choose?
Well, your fruit preferences and the types of fruit in the baskets are irrelevant. All that matters is their objective exchange value, that is, what you can exchange them for on the market. Clearly, you should choose the basket with the highest objective exchange value (dollar value), which is the basket with 7 apples. You can then sell these apples and buy an orange followed by whatever your next most desired good is, and so on.
This fact generalizes to all investment/entrepreneurial activity. Your subjective preferences are irrelevant to the question of what you should do as an entrepreneur/investor. That is, you should always purchase the item that is most undervalued and/or which will soon be overvalued. Conversely, you should always sell the item that is most overvalued and/or which will soon be undervalued. As far as these kinds of decisions are concerned, the monetary value of the goods in question is their only value.