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Topic: More on the economic stupidity of economic conservatism (was Martin
Bic...)

Replies: 8   Last Post: Sep 10, 2012 10:42 PM

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Paul A. Tanner III

Posts: 5,920
Registered: 12/6/04
Re: More on the economic stupidity of economic conservatism (was Martin Bic...)
Posted: Sep 8, 2012 2:12 PM
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On Sat, Sep 8, 2012 at 5:30 AM, Robert Hansen <bob@rsccore.com> wrote:
>
> On Sep 7, 2012, at 3:04 PM, Paul Tanner <upprho@gmail.com> wrote:
>

>> On Fri, Sep 7, 2012 at 2:16 PM, Robert Hansen <bob@rsccore.com> wrote:
>>> Please Paul, in a paragraph of 4 or 5 sentences, WHERE DOES THE MONEY COME FROM?
>>>

>>
>> I will answer directly only intelligent questions.
>>
>> My indirect answer to this dumb question is to reiterate everything I
>> said in my last two posts in this thread
>>
>> http://mathforum.org/kb/message.jspa?messageID=7885638
>>
>> and
>>
>> http://mathforum.org/kb/message.jspa?messageID=7885723
>>
>> but if you think that your question is not dumb, then you need to
>> explain what you mean, including explaining why you don't ask this
>> question for any and all countries rather than just for Norway, which
>> by the context is clear you did. And if in asking this question the
>> way you did you have some point to make or an argument to make then
>> simply say it.

>
>
> You made an example of Norway's higher per capita GDP which I take to mean that Norway is "wealthier" per capita than the U.S.
>
> I am not questioning that statement, I am just asking where does the money come from.
>
> I suggested a while back that they have a healthy surplus of trade which would account for their extra wealth.
>
> You seem to have said in your post earlier in this thread that this (trade surplus) is not the source of their extra wealth.
>
> So I asked you "Where does the money come from?"
>
> Bob Hansen


First, there is much in economic literature that shows that when looking at all the data internationally there is no correlation between per-capita GDP or GDP growth on the one and net exports on the other. Although having a trade surplus or trade imbalance has an effect, it turns out that there are just too many other factors that have an effect and even a stronger effect on GDP or GDP growth. There are too many counterexamples to a hypothesized correlation either way. One example of negative net exports and high GDP growth is the US itself for the latter part of the 20th century, especially during Regan's two terms (under Reagan until 1987-1988, there was an explosion in the trade deficit yet quite high GDP growth due in part to all that federal government deficit spending which was of course unsustainable). One example of even very high positive net exports - so high it was the highest in the world - but lower GDP growth is Germany since reunification.

Second, your statement above is an example of many ways economic conservatism is off in claimed correlations that try to promote the economic conservative agenda for smaller government and more privatization. Here are some:

Not only as I said above do have plenty of examples worldwide of

(1) high per-capita GDP or GDP growth with high exports, low per-capita GDP or GDP growth with a high exports, high per-capita GDP or GDP growth with low exports, and low per-capita GDP or GDP growth with low exports,

we also have plenty of examples worldwide of

(2) a big per-capita GDP or GDP growth with a big government, a small per-capita GDP or GDP growth with a big government, a big per-capita GDP or GDP growth with a small government, and a small per-capita GDP or GDP growth with a small government,

and we also have plenty of examples worldwide of

(3) more per-capita GDP or GDP growth with more privatization, less per-capita GDP or GDP growth with more privatization, more per-capita GDP or GDP growth with less privatization, and less per-capita GDP or GDP growth with less privatization.

And on and on with many of the claimed correlations of economic conservatism not holding up, simply because as I said before there are just too many other factors that have an effect on GDP or GDP growth.

Even though there really are not correlations that hold up with respect to the size of government or privatization, these things do have some effects as do so many other things. This means that if there is are correlation to be found that hold up, it would be in that "happy medium" sense.

For example, the countries with the highest per-capita GDPs, most of the countries of northern Europe, have a rough 50-50 split between the percentage of GDP made up by government and the percentage of GDP made up by non-government. When we look at the whole world over the 20th century, when we go too far in either direction we see this: The closer we get to the percentage of GDP made up by government getting closer to 100%, the more we get those poorer communist countries that had to be supported by its Cold War boss the Soviet Union, and the closer we get to the percentage of GDP made up by non-government getting closer to 100%, the more we get those poorer crony-capitalist tin-pot dictatorships that had to be supported by its Cold War boss the United States, where the government in those countries did almost nothing for the people of that country - those dictators and their cronies running all the big businesses of those countries kept almost all of the production of that country for themselves.

In general, if we want to know "where does the money come from" in the democracies that have produced the highest GDPs in the world, we have to say that there are at least two important factors: Truly democratic high wage labor and truly democratic entrepreneurial capitalism.

For the first:

It speaks for itself as to why it's so important. The more we see more of the workers of a country being able to buy the goods and services they produce, the more the country does not need to export what it produces to find buyers.

On this point: In spite of more and more people in China having more and more money to spend, the Chinese communists who run the country will eventually have to comes to terms in a very major way with how badly they have been paying the bottom vast majority of their workforce. This is because they cannot rely only on very high exports forever to find buyers for the vast majority of what they produce. Even high-export Germany has a well paid workforce that can buy what it produces.

The US is doing what economic conservatism says should be done, which is to kill more and more higher paying jobs and replace them with more and more lower paying jobs. (The US used to have a half century ago about 1 out of 3 jobs being good paying union job, where now it's only roughly 1 in 10.)

And by the way, it's a conservative lie that this had to be done to keep the US internationally competitive with other countries like high-export Germany, since these other countries in question like high-export Germany are internationally competitive without having killed off their good paying union jobs.

Norway is one of if not the highest wage country in the world, where the average job pays about 80,000 dollars per year. They can buy what they produce in a very major way, which is part of why they have such a high per-capita nominal GDP (again, about twice as large as the US).

And so with the collapsing ability of the American worker to buy what he/she produces, we see one reason that doing what economic conservatism wants with respect to labor compensation is killing the ability of the US to ever have the great prosperity it used to have spread much more democratically across its population.

For the second:

In these high per-capita GDP countries in periods of their highest prosperity we see the highest participation entrepreneurial capitalism in terms of how large a percentage of the general public become capitalists - owners of a legitimate business (I say "legitimate" because these multi-level pyramid-like things that don't create jobs don't count) that create jobs (preferable higher paying rather than lower paying, or at least with prospect of growing into a business with higher rather than lower paying jobs). More so than in the US, in Norway and these other countries we actually see a higher percentage of their population being capitalists, and we see higher upward income mobility in these countries, in part because of this former point.

The reason the US is going downhill with respect to these last two points is this: More and more, as we more and more deregulate the financial industry, we find entrepreneurial capitalism being only for those who are already rich - or based on what Romney said recently in a Freudian slip, being only for those who have parents rich enough to lend money to start a business or to expand a business. These regulations we used to have, most importantly the Glass-Steagall law, essentially forced the commercial (but not the investment) banks - including most importantly the big commercial banks - to make more than would otherwise be the case small or medium sized business loans to people to start or expand small or medium sized businesses. That is, even though banks could make more money more easily and more quickly doing something else than loan it this way, this something else including such as gambling in various stock, bond, and commodities markets all over the world using big and powerful computers and computer programs, they were not legally allowed to do so. And when this was going on, people did not have to be already rich to get the capital to become capitalists. In the middle part of the 20th century after WWII, small business - so-called Mom-and-Pop capitalism - and medium business thrived in part because of this. But as conservatives succeeded in taking the regulations off big corporations, especially the big financial corporations, we saw more and more business loans to small or medium sized businesses drying up simply because these deregulations removed those former legal restrictions on making more money more easily and more quickly doing something else, which I just described above giving an example. But this does not mean that the rich like Trump cannot still get their business loans - for various reasons they still can. But as Trump himself has been saying for a while, those who are not rich just can't anymore get the capital they need from the banks even if they have great and innovative ideas. That's to be expected when the banks have no more legal restrictions on making more money more easily and more quickly doing something else than loan it this way, this something else including such as gambling in various stock, bond, and commodities markets all over the world using big and powerful computers and computer programs.

Norway solves this problem via the socialism of having the federal government simply owning the big banks of that country. I believe that one of them is called Innovation Norway - and as the name implies, this bank's reason for being is to promote business activity in Norway, in part by providing capital in the form of business loans to Norwegian citizens who have innovative ideas.

The state of North Dakota did this. In 1919, some farmers, who could not get the business loans they needed, in order to get those loans they needed did the socialist thing and through political action caused the state government to start a government bank, the Bank of North Dakota, where its mission is to promote business activity in the state mostly through business loans, and where the deposits are the state revenues. (It's actually quite safe and even safer than the usual way since governments have to deposit their money somewhere and so the government might as well own the bank or banks that hold the government deposits.)

In fact, government at least majority-owning at least almost all of the big commercial banks happens to be the only way to maximize entrepreneurial capitalism in a country, including maximizing it for all, not just for the already rich. There are at least two reasons why private banks simply cannot go as far as government in terms of making loans to start or expand business in order to cause the economy to grow more than would otherwise be the case: (1) A sovereign government simply has much greater capacity to absorb risk-taking in making business loans than a private bank ever could. (2) And this is true to practically an unlimited degree if the sovereign government - and the entire economy that this government governs - is backed up by a fiat money based central bank. This should be obvious to all who understands the power of fiat money.

Just consider the power of fiat money at work: One example: Not even once in history has a country on its own fiat money based currency gone into a quantitative economic depression. Not even once. Every last quantitative economic depression that has ever occurred happened only to a country that was either on a gold standard or on some other such standard where the country could not print money and use it through its financial sector to provide the needed capital to fill up the holes in a contracting economy - an economy in a recession - to keep that recession from turning onto a quantitative depression. Look at it this way: If you owned a business and the government gave you a printing press such that you could print all the money you wanted as long as it was only for the purpose of always being able to cover the cost of doing business that you could not cover from your business revenues, then could you ever not be able to cover the cost of doing business? Of course not.

One last point on fiat money: One reason almost all countries in the world went to it from such as the gold standard is because a country on a gold standard or other such standard could not continue to grow as fast as the countries it was competing against. It was just "survival of that fittest" in terms of the international competition of monetary policy.

Back to this second main point of loaning money in the name of promoting entrepreneurial capitalism:

This way that I described above for Norway is how China does it. Their federal government of China has majority or complete ownership of all the big banks in that country - if it is publicly traded then the government owns a majority of the voting stock, which means it has a majority vote on the board of directors, which means it runs the corporation. The government there - just as in Norway - in this way controls roughly 1/3 of all publicly traded corporations in that country, including almost all of the big corporations in almost all sectors.

The countries all over the world that do it this way have solved the problem of government being bought off by the executives of the big private corporations - the government owns their behinds. They can find themselves out on the streets in an instant if they cross that majority owner by acting in a way contrary to the general welfare (something the US Constitution's Preamble says is something that should be promoted).

Why doesn't the US do this ownership of the big banks thing to promote entrepreneurial capitalism for all and not for the already rich (or as Romney said, for those who have rich parents)? Simple. Because conservatism has succeeded in brainwashing and keeping brainwashed enough of the population against any and all socialism, including the above very smart use of it to promote entrepreneurial capitalism.

Finally, consider these terrible statistics that is just the tip of the iceberg that doing things the economic conservative way, this taking regulations off the financial sector and letting them do whatever they want to do with the people's money that comes from the central bank the Federal Reserve that started under Reagan back in the 1980s, is killing any hope of ever again having truly democratic entrepreneurial capitalism in the US:

On the question of what percent of all that money that comes out of the Federal Reserve goes immediately through the Wall Street economy into the Main Street economy for productive use: Under Reagan, it was 70%. Now under Obama, it is 30%.

On the question of where newly created wealth goes: Under Clinton, roughly 41% of all newly created wealth went to the top 1%. Under Bush, roughly 63% of all newly created wealth went to the top 1%. Now under Obama, roughly 91% of all newly created wealth goes to the top 1%.


Message was edited by: Paul A. Tanner III



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