The Metaphor At Platform 10 Will Be Departing in 2 Minutes..

It’s a Bulletin train adapted to British conditions. They call it the Javelin. Neat, isn’t it? Sleek, stylish, modern and all ready to whisk people from Kings Cross/St.Pancras to the 2012 Olympics in 7 minutes.

That would be the Olympics at Stratford, built on a site which used to make locomotives when the Olympics were last here in 1948 according to Jonathan Glancey.

Glancey implies that we don't make trains any more so these ones were imported from Japan*. Never mind, I'm sure someone in the City of London arranged the financing deal, insured it and offset the risk with some clever derivative instrument.

But now the City's buggered, might it just be an idea to have an industrial policy which worked to turn that situation around, so we could build more stuff like this? Or even, somewhat more to the point, stuff like Vestas wind turbines? Go look at the Vestas 2008 order book at the bottom of this page: not one order from Britain. 240 wind turbines ordered by China.

P.S. I see the workers occupying Vestas on the Isle of Wight now have their own blog. (via). Is it too late to organise a write in campaign to get this in the top ten political blogs?

*I'm told this is not so - see comments from John B

Balance Sheet Recessions

Via, I learn of the concept of 'balance sheet recessions' at Vox. These, apparently, aren't like normal recessions. Oh no: in a normal, 'textbook', recession capital and labour gradually trickle our of unprofitable sectors of enterprise and reassemble in new areas of endeavour where profits can once again be made. Not so in a balance sheet recession:

The financial crisis has put much of the banking system on the edge – or beyond -- of insolvency. Large segments of the business sector are saddled with much short-term debt that is difficult or impossible to roll over in the current market....

The holes that have opened up in the balance sheets of the private sector are very large and still growing. A recent estimate by Jan Hatzius and Andrew Tilton of Goldman Sachs totes up capital losses of $2.1 trillion; Nouriel Roubini thinks the total is likely to be $3 trillion. About half of these losses belong to financial institutions which means that more banks are insolvent – or nearly so – than has been publicly recognised so far.

So the private sector as a whole is bent on reducing debt. Businesses will use depreciation charges and sell off inventories to do so. Households are trying once more to save. Less investment and more saving spell declining incomes. The cash flows supporting the servicing of debts are dwindling. This is a destabilising process but one that works relatively slowly. The efforts by financial firms to deleverage are the more dangerous because they can trigger a rapid avalanche of defaults...deficit spending will be absorbed into the financial sinkholes in private sector balance sheets and will not become effective until those holes have been filled. During the years that national income fails to respond, tax receipts will be lower so that the national debt is likely to end up larger than if the banking sector’s losses had been “nationalised” at the outset."

In other words, those people piously worrying about public sector economic stimuli 'crowding out' private sector investment are in cloud cookoo land. & even if he asks nicely Alistair Darling is unlikely to get the banks to move very much on lending to the 'real' economy: their first priority is to get back all the money they've lost and they'll do that by absorbing public spending onto their balance sheets until they're looking healthy again. Which took absolutely years in Japan.

This, I believe, is sometimes called rewarding successful risk management in line with market conditions. Me, I'm a simple minded soul, and I call it old fashioned class struggle. But with only one side fighting.

Zombie Ideas

John Quiggin, a social democratically inclined Aussie academic economist, is writing a book including a chapter on the Efficient Market Hypothesis (and other 'zombie' idea): he's trying out rough drafts of bits of the chapter over at Crooked Timber. It's all worth a read, but I like this bit:

"Once the EMH is accepted, there is no need to worry about imbalances in savings and consumption. International capital movements can be seen as the aggregate of a large number of transactions between ‘consenting adults’, buying and selling financial assets in markets which, according to the EMH, have already taken into account all available information about future risks. If a national government has better information, the appropriate response is not to act on it, but to release the information to the markets.

On the traditional, income-based view, by contrast, asset-based arguments are misleading and dangerous. By the time sentiment shifts in asset markets, the opportunity for an orderly adjustment will already have been lost. Advocates of the traditional view pointed to episodes of contagious panic in financial markets..."

Well, quite.

A Question of Theory?

I'm working my way through this book; it's not a great choice for a non economist like me, and some of it is a bit above my head. Moreover, some professionals seem to confirm my inexpert feeling that it's a bit of a curate's egg as well. But given the title I thought I had to give it a go. Well, the title plus the fact he wrote a couple of smashing Spokesman pamphlets thirty years ago: Socialism and Parliamentary Democracy and Trotsky and Fatalistic Marxism. Both of those influenced me a lot as a teenager...but he's changed his view of the world it seems to me, though I'm cautious about judging the theoretical development of people whose theories I don't fully understand.

What I will take away from the book, however, is this rather striking set of phrases:

The...standard core of utility theory is non falsifiable. ...Boland (1981) asks if any conceivable evidence would refute the standard assumption of maximising behaviour. He shows that such an attempt at falsification could never work. Any claim that a person was is not maximising anything can always be countered by the response that the person is in fact maximising something else. Given that we can never in principle demonstrate that 'something else' is not being maximised, the theory is invulnerable to empirical attack...

The problem with the maximisation argument are doubly severe when it assumes utility is being maximised. There is no experimental or other phenomenon that cannot in principle be 'explained' within a utility maximising framework...No evidence can, in principle, falsify the assumption that behaviour results from individuals or households maximising their utility.....by encompassing all possible arrangements and interconnections, the important relationships and connections are lost in a sea of universal possibilities. Accordingly, the universality of a theory does not necessarily mean it is useful or informative...

A chapter of carefully phrased caveats and examples follow. But my interest remains with this broad opening claim. Does it imply that the model of 'rational' behaviour which underpins mainstream economics is actually unprovable? & isn't this the very complaint that Popper raised against Marxism all those years ago?

No So Much An African Grey, More A Govan Bluenose..

I really should be above this sort of thing, but this makes me laugh at all sorts of levels. The clue as to why is probably in the surname I use on this blog...

"Jim Watt, from Horizon Housing Association, confirmed a complaint had been received from another tenant but said Linda and Rio had been cleared of the bigotry claims.

He said: "We spoke to the tenant with the pet as well as other neighbouring tenants. We took the view that there had not been anti-social behaviour which would include sectarian behaviour.""

Via Slugger

Open Left? Let's Have An Open Hearted One...

The whole Open Left thing is a tacit acknowledgment that the New Labour government is about to go down to defeat. I’ve come across the idea of ‘getting your retaliation in first’ before but this may be the first time I've stumbled on the idea of getting your ‘post-defeat soul searching in first’. This is perhaps one reason why it’s all such an unsatisfying slurry of words and vaguely defined dangling questions.

I'd advise all these angst ridden wannabe 21st Century lefties to go read Orwell:

The inability of mankind to imagine happiness except in the form of relief, either from effort or pain, presents Socialists with a serious problem. Dickens can describe a poverty-stricken family tucking into a roast goose, and can make them appear happy; on the other hand, the inhabitants of perfect universes seem to have no spontaneous gaiety and are usually somewhat repulsive into the bargain......The Socialist objective is not a society where everything comes right in the end, because kind old gentlemen give away turkeys. ..... We want a world where Scrooge, with his dividends, and Tiny Tim, with his tuberculous leg, would both be unthinkable. But does that mean we are aiming at some painless, effortless Utopia? At the risk of saying something which the editors of Tribune may not endorse, I suggest that the real objective of Socialism is not happiness. Happiness hitherto has been a by-product, and for all we know it may always remain so. The real objective of Socialism is human brotherhood.

I've always taken this to imply several things things:

1. Socialism doesn't depend on some idealistic concept of the perfectibility of human kind;
2. Socialism won't bring universal happiness (though there is no reason to imagine people will, on average, be any less happy than under capitalism);
3. The specific and distinctive policy objectives of 20th Century socialism - the predominantly social ownership of the means of production, distribution and exchange; or significant resource distribution between individuals on the basis of need, not effort -were, in fact, only a means to an end: the end being what Orwell called 'human brotherhood', but what we might now describe as social solidarity or community inclusiveness, the lack of which is the key sickness at the heart of our society.

We need a 21st Century equivalent vision. I don't care whether it's called 'socialism' or not any more.

Total Bankers Redux

Dunc wanted to know where all the anger's gone a couple of days ago.

Look Duncan, the anger's over here, waving and shouting "coooee" at us:

"...Goldman last year, after it converted to bank holding company status, announced that it was “taking steps to reduce leverage.” But what’s happened since then is that Goldman has actually been emboldened by all its state backing to borrow more and gamble more than ever. This is the equivalent of a regular casino gambler who hears that the house has doubled down on his credit line and decides to stay up at the tables all night, instead of going home and sobering up. Just look at Goldman’s VaR, or Value at Risk, which measures the amount of money the bank puts at risk on any given day: it’s soared since last year.

Taken altogether, what all of this means is that Goldman’s profit announcement is a giant “fuck you” to the rest of the country. It is a statement of supreme privilege, an announcement that it feels no shame in taking subsidies and funneling them directly into their pockets, and moreover feels no fear of any public response. It knows that it’s untouchable and it’s not going to change its behavior for anyone. And it doesn’t matter who knows it.

There are going to be some people who say that some of this stuff isn’t government subsidy so much as ordinary government contracting. After all, do we criticize Boeing for making airplanes or Electric Boat for making submarines during a war? If we don’t do that, then why should we be pissed about Goldman making a profit underwriting TARP repayment stock issuances, or Treasuries?

The difference is that Boeing and Electric Boat didn’t start the war. But these guys on Wall Street causesd this crisis, and now they’re raking in money on the infrastructure their buddies in government have devised to bail them out. It’s a self-fulfilling cycle — beautiful, in a way, but at the same time sort of uniquely disgusting. That they’re going to get away with it is bad enough — that they’re getting praised for it, for being such smart guys, is damn near intolerable."

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