Monday, October 27, 2008

How Not to Solve the Global Financial Crisis

Next month there will be a summit involving something called the G20 on the global financial crisis, says Pres. Bush, according to The Chicago Tribune:

"This summit will be the first in a series of meetings aimed at addressing this crisis. The summit will bring together leaders of the G20 nations -- countries that represent both the developed and the developing world. And the summit will also include the heads of the International Monetary Fund, the World Bank, and the Financial Stability Forum, as well as the Secretary General of the United Nations.

"During this summit, we will discuss the causes of the problems in our financial systems, review the progress being made to address the current crisis, and begin developing principles of reform for regulatory bodies and institutions related to our financial sectors. While the specific solutions pursued by every country may not be the same, agreeing on a common set of principles will be an essential step towards preventing similar crises in the future.


The idea that a bunch of heads of state, joined by a bunch of bureaucratic micromanagers of the sort who tend to populate the World Bank, the UN and particularly the IMF, can hold a meeting in the de facto capital of the world, Washington, and fix what ails the world economically is misplaced. We got into this mess because of years of accumulated mistakes that inevitably arise during a a great boom, which must be cleaned out. In this case the problem is worse because of the extra noise in housing markets introduced by Washington’s social engineering, which, combined with the global securitization of mortgages, has allowed everyone else to first enjoy our bubble and now imbibe our bitter medicine.

The only way out is the same approach that Andrew Mellon, President Hoover’s Treasury Secretary, was said (by Hoover) to have recommended: "Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate." Once the mistakes are out of the system, growth resumes. The mistakes have piled up because of combined dramatic growth-driven economic uncertainty and political uncertainty. Recent evidence – stock markets continuing to decline around the world despite one Keynesian/FDR remedy (stimulus, bank bailouts) after another – suggests that we cannot use macroeconomic management to get us out of this mess. There is nothing that a bunch of leaders can do from on high to fix a problem that is fundamentally, like all economic phenomena, an individual one – this individual decision now seen to be a mistake, that one not, that one over there a wonderful opportunity yet to be exploited.

What the summit does represent is risk – political risk in particular. This is because politicians and bureaucrats will want to do what they like to do - enhance their control, try to be seen as doing something right now instead of telling their constituents that it will be necessary to wait a bit. The combination of a lame-duck U.S. President, a more micromanagingly interventionist Administration and Congress in the wings, and Asian nations looking to reengineer global economic management for their own political interest while European nations look to increase state control for philosophical ones, is an explosive one. A quarter century of economic progress is at risk. If we take the 1930s way – control, management, administration, regulation – and forget Mr. Mellon’s advice, the results will be the same.

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1 Comments:

Blogger A said...

There is a principle called Ockham's razor which is attributed to the 14th-century English logician and Franciscan friar, William of Ockham. It basically states that – "All other things being equal, the simplest solution is the best."

The following are two simple ideas that effectively create the ideal social construct.

Simple Idea #1

1. Socialize ALL Land

2. Charge leases on ALL Land based on current market prices.

3. Return 100% of the resulting revenue to every man, woman and child in the form of a yearly dividend check.

4. Make the Universal Birthright of Land an Everlasting Standard in the education of every Child.

This effectively makes the average piece of Land Free for every Living Soul and restores our Natural Birthright as well as coupling our social construct to the Principles of Life.

Simple Idea #2

1. Remove ALL FORMS of taxation

2. Implement a Tax on ALL NEW goods based on the resources they contain and the resources they use in production and delivery (this can easily be implemented with the current barcode system used at the checkout)

3. Use this system to encourage/discourage various resource usages (High tax on non-renewable/ecosystem damaging products and low/no tax on renewable/ecosystem enhancing products) and to encourage purchasing of local products.

4. Use the resulting revenue to fund infrastructure expenses and the restoration of ecosystems.

This effectively encourages the creation/use of longer lasting, high quality products as well as encouraging recycling and reuse of existing products while also establishing a compatible relationship with the ecosystem.


Idea #2 effectively constrains the ravaging appetite of the capitalistic consumer society within the Boundaries of Sustainability while Idea #1 effectively encloses both Sustainability and capitalism within the Principles of Life.

That's it!!! The path to True Democracy. Simple and Effective

11:19 AM  

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