Economic Discussion

dannyd20

I have never been formally educated about economic matters, nor to be fair, have I been particularly interested in them. However, for obvious reasons, my interest levels have risen quite significantly in recent times and I doubt I am alone in that. So, I have tried to self-educate to the best of my ability. But there are still many things that I don’t understand. With what follows, I hope to generate some discussion, get some opinions from more economically conversant folk and educate myself further.



When reading about the ‘Irish Crisis’ a common theme seems to run through almost every opinion piece:

In the early 2000s, the financial markets began to offer virtually unlimited credit to all comers. And while Icelandic people used foreign money to conquer foreign places—trophy companies in Britain, chunks of Scandinavia— Irish people used foreign money to conquer Ireland. Left alone in a dark room with a pile of money, the Irish decided what they really wanted to do with it was to buy Ireland. From each other!

By 2006, the investment returns on Irish land were ridiculously low: it made no sense for capital to flow into Ireland to develop more of it. Irish home prices implied an economic growth rate that would leave Ireland, in 25 years, three times as rich as the United States. Where would this growth come from? Since 2000, Irish exports had stalled, and the economy had been consumed with building houses and offices and hotels. “Competitiveness didn’t matter; From now on we were going to get rich building houses for each other.”

With the benefit of 20/20 hindsight, it is utterly apparent how absurd this was, right? It is impossible to perpetuate domestic growth through foreign investment; we simply worked ourselves in to an economic tailspin then crashed (and burned).




Now Ireland has international liabilities equivalent to almost 16 times its 2009 GDP. The consolidated Irish sovereign and Irish domestic financial system is insolvent — the Irish banks are ‘too big to save’ for the Irish sovereign. The Irish sovereign cannot ‘bail out’ the banks from its own resources and make its own creditors — the owners of Irish sovereign debt — whole.
Ireland’s financial support package from EU/IMF will buy time, but does not address the fundamental insolvency issues of the consolidated sovereign and banking system. The bailout simply serves to saddle the people of Ireland with the bad debts that have been amassed by banks and developers. The EU/IMF bailout is not a bailout of Ireland, it is a bailout for British, German and French banks that gambled on the likes of Anglo, AIB and Bank of Ireland.
Revenue estimates from new tax measures adopted by the government have a tendency to rely on optimistic growth assumptions and actual revenue often disappoints as a result. Therefore it is clear that spending cuts will constitute the bulk of fiscal consolidation measures.

The budget deficit in Ireland reached nearly 38% of GDP in 2010 because of the additional government support for the banking sector. GDP growth averaged 6% in 1995-2007, but economic activity has dropped sharply since 2008 with GDP falling by over 3% in 2008, nearly 8% in 2009, and 1% in 2010, and further contraction is expected in 2011.

So what will happen? What can happen? Will the unsecured and non-sovereign-guaranteed creditors of the banks, or the creditors of the sovereign (including holders of sovereign-guaranteed bank debt) eventually accept sovereign debt restructuring with a net present discounted value of debt service haircut, even if this is not a condition for accessing the European Financial Stability Funds at present?




As I try to understand the economic difficulties in Ireland, it is difficult not to think more about the wider economy. Take the EU for example: it is a stated goal of the EU that “The ECB aims at inflation rates of below, but close to, 2% over the medium term.” Inflation is the rise in the general level of the price of goods and services over a period of time. And as goods and services cost more, we need to earn more in order to continue to be able to afford to purchase them. So we will always need more money. What we have will never be enough.

So we will always need more and more money, how can that happen? Banks just create it and we borrow it. Fractional reserve banking is practiced by all modern commercial banks. This means that only a fraction of the total deposits managed by a bank must be kept in reserve. This results in, to use the term currently in vogue, a Ponzi scheme. Or a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going. How much debt is there in the world? How much money is in circulation? How can this be in any way sustainable?

Another term that keeps cropping up for me is fiat currency or fiat money. Apparently, most national currencies, including the US dollar, the euro, and all other reserve currencies, are fiat currencies, and have been since the Nixon Shock of 1971. Fiat money is money that has value only because of government regulation or law. The term fiat money has been defined variously as: any money declared by a government to be legal tender; State-issued money which is neither legally convertible to any other thing, nor fixed in value in terms of any objective standard; and money without intrinsic value. That’s right. Money without intrinsic value. Erm what? How does that make any sense?


Three basic imbalances that caused the most recent crisis of international capitalism have still not been resolved: the imbalance between finance and the real economy; the macroeconomic imbalances between major players in the international economy; and the ecological imbalance that will necessarily become a constraint on future growth, not only because of climate change but also because of other environmental problems and the demand for energy. So what can be done about these?

There have been other negative effects associated capitalist economic growth pattern pursued for the last century. Within several developing countries, it has led to an internal “brain drain” with adverse implications for future innovation and productivity growth. The skewed structure of incentives generated by the explosive growth of finance directed the best young minds towards careers that promised quick rewards and large material gains, rather than painstaking but socially necessary research and basic science. The relocation of certain industries and the consequent local demand for skilled and semi-skilled labour did lead to increased opportunities for educated employment, but it also led bright young people to enter into work that is typically mechanical, in jobs not requiring much originality or creativity, and offering them little opportunity to develop their intellectual capacities. At the same time, crucial activities that are necessary for the economy were inadequately rewarded. As you sow, so shall you reap...

And now for some more statistics ... according to the Institute for Development Economics Research at the United Nations University: the richest 2% of adults in the world own more than half of global household wealth. The most comprehensive study of personal wealth ever undertaken also reported that the richest 1% of adults alone owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total. In contrast, the bottom half of the world adult population owned barely 1% of global wealth. Wealth is heavily concentrated in North America, Europe, and high income Asia-Pacific countries. People in these countries collectively hold almost 90% of total world wealth. Although North America has only 6% of the world adult population, it accounts for 34% of household wealth.

The Gini value is a statistic which describes inequality on a scale from zero to one. Gini values for wealth inequality within countries are usually between 65% and 75%, and sometimes exceed 80%. The UNU-WIDER study estimates that the global wealth Gini for adults is 89%. The same degree of inequality would be obtained if one person in a group of ten takes 99% of the total pie and the other nine share the remaining 1%.

So the world is already unbelievably unequal. And global economic strategy seems to seek to increase inequality and promote capital gains, investor returns. Developing countries are caught between volatile global prices, on the one hand, and reduced fiscal space, on the other. Price volatility and changes in marketing margins mean that the benefits of price increases generally do not reach the actual producers, even as consumers – already hit by stagnant wages and falling employment – suffer from higher prices. Among more vulnerable populations, the effects of renewed food price increases in terms of real incomes, hunger and malnutrition are likely to be devastating. The Food and Agriculture Organization of the United Nations estimated that in February 2010, 32 countries were experiencing food emergencies, with many more facing moderate food crises. There are more than enough resources in the world to ensure a good standard of living for the entire global population yet we don’t distribute these resources because of the monetary value attached to them.




Aggregate all of these factors. The profiteering of “index investors” who simply bet on changing prices thus driving up prices far beyond those necessitated by any real changes in demand and supply, global exploitation and pursuit of money don’t appear to be conducive to a positive future. Think about what has happened in Ireland ... how absurd our notions of continued domestic growth seem, now translate that to what is happening globally. It seems absolutely apparent to me that sustained growth is no longer possible in the global economy. It simply serves to perpetuate and increase global inequality.



Does the current ‘socio-economic system’ make sense? The very concept of money and what that has become. Is it relevant? Does it allow real progress? The resources on this planet are finite yet the global economic system assumes continuous economic growth is possible. Why do common people subscribe to this system? What will the profiteering mean for our social and environmental future? Why is the status quo unchallenged? Surely there is an opportunity for the world’s citizens and their leaders to restructure economic relations in a more democratic and sustainable way? How does any of this make sense? Am I buying into simplistic, sensationalist notions? Is everyone insane? What am I missing??



If there are flaws in my facts or reasoning, please feel free to criticise constructively.



Some of my references:
Citigroup Global Markets Inc. Debt of Nations report www.nber.org/~wbuiter/DoN.pdf
VF Business article by Michael Lewis (link)
Central Statistics Office Ireland http://www.cso.ie/statistics/
EuroStat http://epp.eurostat.ec.europa.eu
The Economic and Social Research Institute Ireland http://www.esri.ie
European Central Bank http://www.ecb.int
Europa Summaries of EU Legislation http://europa.eu
Irish Department of Foreign Affairs http://www.eumatters.ie
International Labour Review: Sustainable growth trajectories for the developing world http://www.ilo.org/public/english/revue/download/pdf/s4ghosh.pdf
World Institute for Development Economics Research of the United Nations University http://www.wider.unu.edu/

Joe1919

dannyd20 wrote: »

....Money without intrinsic value. Erm what? How does that make any sense?

I think it was David Hume ( friend of Adam Smiths) that first explained in 1752 that money need not have intrinsic value.

http://socserv.mcmaster.ca/~econ/ugcm/3ll3/hume/money.txt

I will make three other general comments.
1. The present economic system despite its difficulties is supporting a world population of greater than six billion.
2.From my experience, I estimate that government run services can cost about three times more than private services. I am thinking here of nursing homes and air-flights (before government ran airlines became more commercial). Having worked in the public services for years, I would be careful about too much of a controled economy.
3.Although levels of inequality may be high, people are still much better off (in real rather than in relative terms)overall in that they are better nurished etc.
Remember, the gini is only a comparative index.

dannyd20

Thanks for the comments Joe,

I understand money can have no intrinsic value but what does that mean for all the investments folk trading bonds and debt securities? They are just trading digital currency or numbers with no intrinsic value… so why does any of it matter? At the end of the day, it means nothing anyway. Am I being too literal?

The present economic system despite its difficulties is supporting a world population of greater than six billion.

By support, you mean there are over 6bn people alive on Earth today? In that case, yes, the system is currently sustaining this population but the key word for me is currently. Realistically, what kind of future are we heading towards? Earth has finite resources. Assigning arbitrary monetary value to them creates a system which perpetuates uneven distribution of resources. It doesn’t give people a fair share or even a fair chance at improving their situation because the odds are so firmly stacked against them.

When I look back on what happened in Ireland with the insane pursuit of property etc, it seems that there is a lesson that can be learned on a global scale. Estimates I have seen put global inflation around 3 to 5%. How is this possible in a world with finite resources? Is it just because the arbitrary monetary value we have assigned to things is arbitrarily increased?? How can that be sustainable?

From my experience, I estimate that government run services can cost about three times more than private services. I am thinking here of nursing homes and air-flights (before government ran airlines became more commercial). Having worked in the public services for years, I would be careful about too much of a controled economy.

I think this is down to a lack of competitiveness and personal responsibility, if a capitalist business is no longer performing competitively, it will react immediately or fail. Public services seem to have a huge inertia associated with change and little personal responsibility or accountability for performance.

I’m not necessarily in favour of a more controlled economy, in fact whether it’s a planned economy or a market economy makes little difference. The only benefits to a more controlled economy that I see are the potential to move a little away from pure profit/greed motivation. However, this will always come back to the question of ‘greater good’.

Although levels of inequality may be high, people are still much better off (in real rather than in relative terms)overall in that they are better nurished etc.
Remember, the gini is only a comparative index.

I know the Gini coefficient doesn’t tell the whole story but I think there is more than enough evidence to show that we can safely say that the richest 10% of the world's adults control about 85% of global household wealth -- defined very broadly as all assets (not just financial assets), minus debts. The wealthy use free-market rhetoric to justify imposing greater economic risk upon the lower classes, while being insulated from the harshness of the market by the political and economic advantages that such wealth affords. And so, the inequality gap is getting wider.

Joe1919

Although money has no intrinsic value, it does have instrumental value. i.e. Its an instrument that can get us things that have a value in themselves. Money also represents a value and it has a promissory value, the same as a contract.
The idea of money is thousands of years old. Money also acts as a store of value and a way of measuring value and encourages trade without the need of a 'double concidence of wants'.
http://en.wikipedia.org/wiki/Coincidence_of_wants
The idea of money also gives the consumer a considerable amount of freedom in terms of acquiring goods that he desires etc. or in terms of investing or saving or borrowing. Perhaps this is where the problem lies. In a controlled economy, this freedom would be limited.

As regard the world population and growth in general, it does appear that people and animals have an innate desire for growth and there is almost a belief that this can continue indefinitely. However it's often the case in history that certain events such as wars, famines and recessions put a halt to this growth. Recessions are not new but appear to be a normal cycle of history..
http://www.economics.harvard.edu/files/faculty/51_This_Time_Is_Different.pdf
But in the past, recessions often resulted in famines and starvation with up to 25% of the population starving to death.

I presume the population will self limit at some time (e.g shortage of resources) but I agree that this will probably be painful and it would be better if this could be done voluntary and rationally but it may be difficult to get people to agree.

A further problem is motivation. Historicaly, there are two ways: the carrot or the stick. The stick and slavery was the traditional way to motivate workers for thousands of years. Lazy slaves and workers were whipped or starved. But we have changed this system from the stick to the carrot and the chief reward and motivater is money and greed and the idea that one can get ahead and be above average by hard work and enterprise. Hence, at least some inequality is desirable. Some people would perhaps go much further than me here and claim that equality is a myth or a modern day dogma that has no foundation and that society needs stratification of some type to run smoothely.
http://en.wikipedia.org/wiki/Social_stratification

I don't know the answers. It's very hard to predict how people will react to changes and people are not always 100% rational. But there is a great potential to get things wrong as well as right and things can get an awful lot worst.

andrew

dannyd20 wrote: »

With the benefit of 20/20 hindsight, it is utterly apparent how absurd this was, right? It is impossible to perpetuate domestic growth through foreign investment; we simply worked ourselves in to an economic tailspin then crashed (and burned).

As an aside I think you're getting confused between 'foreign money' and 'foreign investment.' Foreign money would be money borrowed from abroad, whereas foreign investment is investment by companies in capital here. The latter is a viable way to create domestic growth, as happened between 1994-2001 (Celtic Tiger).

Now Ireland has international liabilities equivalent to almost 16 times its 2009 GDP. The consolidated Irish sovereign and Irish domestic financial system is insolvent — the Irish banks are ‘too big to save’ for the Irish sovereign. The Irish sovereign cannot ‘bail out’ the banks from its own resources and make its own creditors — the owners of Irish sovereign debt — whole.

This figure is often quoted. Ireland doesn't have these liabilities, it's that firms based in Ireland have these liabilities. These liabilities are not our liabilities.

As I try to understand the economic difficulties in Ireland, it is difficult not to think more about the wider economy. Take the EU for example: it is a stated goal of the EU that “The ECB aims at inflation rates of below, but close to, 2% over the medium term.” Inflation is the rise in the general level of the price of goods and services over a period of time. And as goods and services cost more, we need to earn more in order to continue to be able to afford to purchase them. So we will always need more money. What we have will never be enough.

That kind of inflation level is pretty low. Plus, inflation isn't too much a problem as long as the price of your labour keeps in line with the price of the goods you're buying. So long as that's the case, (and generally speaking with inflation that low it is), then you won't even notice it; it's fine.

So we will always need more and more money, how can that happen? Banks just create it and we borrow it. Fractional reserve banking is practiced by all modern commercial banks. This means that only a fraction of the total deposits managed by a bank must be kept in reserve. This results in, to use the term currently in vogue, a Ponzi scheme. Or a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going. How much debt is there in the world? How much money is in circulation? How can this be in any way sustainable?

A Ponzi scheme "is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors." Banks invest money into capital, the capital earns interest, the interest pays depositors. What's fraudulent/ponzi scheme-ish about that. So the bank doesn't have all of your money right now? No biggie, so long as everyone doesn't claim their money at the same time, then everyone's fine. There's a lot of misinformation posted about the banking system on the internet in general*; you'd do well to ignore it and read an introductory economics textbook instead

Three basic imbalances that caused the most recent crisis of international capitalism have still not been resolved: the imbalance between finance and the real economy; the macroeconomic imbalances between major players in the international economy; and the ecological imbalance that will necessarily become a constraint on future growth, not only because of climate change but also because of other environmental problems and the demand for energy. So what can be done about these?

What do you mean, specifically, when you talk about these imbalances?

There have been other negative effects associated capitalist economic growth pattern pursued for the last century. Within several developing countries, it has led to an internal “brain drain” with adverse implications for future innovation and productivity growth...

In general, economic development leads to a more varied set of possible jobs, not less, I'd say

And now for some more statistics ...

So the world is already unbelievably unequal. And global economic strategy seems to seek to increase inequality and promote capital gains, investor returns. Developing countries...

The problem of developing countries is one which, i've learned recently, is incredibly multifaceted. To be sure, there are aspects of the global economy which havn't helped LDC's. On the other hand, there are a vast array of other, non economic factors, which go into making a country poor. In fact, once countries deal with these problems of governance and conflict, they tend to do pretty well in the world economy. And so while yes inequality exists, and yes poor countries exist, and yes exploitation exists, these are problems with economics constantly tries to deal with and solve, and often these aren't just economic problems, but social ones too.

Think about what has happened in Ireland ... how absurd our notions of continued domestic growth seem, now translate that to what is happening globally. It seems absolutely apparent to me that sustained growth is no longer possible in the global economy. It simply serves to perpetuate and increase global inequality.

Given the recession, it's easy to believe these things. But in terms of the bigger picture, I think you're wrong. The world has been on a growth path for the last 100 years, at least. People now literally live better than kings and queens did back in the old days. Slowly, millions are being pulled out of poverty by capitalism. Even in terms of Ireland, we're still one of the richest countries in Europe; and certainly one of the richest in the world.

Does the current ‘socio-economic system’ make sense? The very concept of money and what that has become. Is it relevant? Does it allow real progress? The resources on this planet are finite yet the global economic system assumes continuous economic growth is possible. Why do common people subscribe to this system? What will the profiteering mean for our social and environmental future? Why is the status quo unchallenged? Surely there is an opportunity for the world’s citizens and their leaders to restructure economic relations in a more democratic and sustainable way? How does any of this make sense? Am I buying into simplistic, sensationalist notions? Is everyone insane? What am I missing??

I think sustainable growth is a bit of an oxymoron, given the world has finite resources. That said, greater efficiency in the use of resources has been a hallmark of economic growth. Granted, this probably hasn't been offset by corresponding increases in consumption, but I think it is possible to wisely manage resources so that growth isn't too destructive.


*General mod note to everyone: If you're going to talk about fiat currency at length, be careful not to wade into conspiracy theory territory.

dannyd20

Joe1919 wrote: »

Although money has no intrinsic value, it does have instrumental value. i.e. Its an instrument that can get us things that have a value in themselves. Money also represents a value and it has a promissory value, the same as a contract.

I understand the concept of money and why it is useful. However, I am less sure about the control of money supply and the apparently deliberately ambiguous practices regarding it. How much control can central banks (who I assume should have noble interests at heart) have overall when competing with commercial banks (who I assume have profit as their only objective)? Money supplies seem to have increased dramatically in the last 20 years or so, but this seems to be mostly due to multiplication of money by commercial banks through fractional reserve banking. Leading to a false representation of the amount of money available? Money acts as a store of value and a way of measuring value. But value is only worth what someone will give in exchange for it. So why is every country in the world in debt? And who are they in debt to? Did that money ever actually exist anyway? What is it’s value based on?

I presume the population will self limit at some time (e.g shortage of resources) but I agree that this will probably be painful and it would be better if this could be done voluntary and rationally but it may be difficult to get people to agree.

Painful self limiting of global population does seem like an inevitability but surely this is mainly due to the profiteering attempts to stockpile resources and then control supply for personal gain rather than distribute as and where required. So should the motives be changed, the behavior might also change?

A further problem is motivation. Historicaly, there are two ways: the carrot or the stick. The stick and slavery was the traditional way to motivate workers for thousands of years. Lazy slaves and workers were whipped or starved. But we have changed this system from the stick to the carrot and the chief reward and motivater is money and greed and the idea that one can get ahead and be above average by hard work and enterprise. Hence, at least some inequality is desirable. Some people would perhaps go much further than me here and claim that equality is a myth or a modern day dogma that has no foundation and that society needs stratification of some type to run smoothely.

I will have to think a lot more about social stratification. Clearly, there are different types of people in the world. Some are born leaders, others wish for direction. How much of this is nature vs. nurture? Every child learns Motivation is a question, particularly when the fruits of labour are considered. How many slaves were working for something that they or their families would ultimately benefit from? Does money give people that chance to develop something that they or their families will ultimately benefit from? Loans, interest, debt, who ultimately benefits? The global social stratification scale seems to be enormous and ever increasing. For those at the top of the stratified social system, do they have free reign, above general laws and morals, to do as they please as they battle to maintain uppermost status? For those in the middle, is there any encouragement for altruism, to value social harmony over wealth or status or is it simply their destiny to forever tread on the heads of others in an attempt to “ascend”? And for those near the bottom, as they slip and slide further, what hope of ever catching a moving target? Could this be Darwinian nature at work, an allegory of the survival of the fittest? But what is fitness in this sense? I suppose this whole discussion has now moved firmly towards the philosophical and ethical considerations that should be an underlying requirement for economic policy makers. I just wonder how much such longer term considerations feature amidst the quick buck mentality.

dannyd20

andrew wrote: »

dannyd20 wrote:

With the benefit of 20/20 hindsight, it is utterly apparent how absurd this was, right? It is impossible to perpetuate domestic growth through foreign investment; we simply worked ourselves in to an economic tailspin then crashed (and burned).

As an aside I think you're getting confused between 'foreign money' and 'foreign investment.' Foreign money would be money borrowed from abroad, whereas foreign investment is investment by companies in capital here. The latter is a viable way to create domestic growth, as happened between 1994-2001 (Celtic Tiger).

Yes, I have confused the expressions. I did mean foreign money.

Now Ireland has international liabilities equivalent to almost 16 times its 2009 GDP. The consolidated Irish sovereign and Irish domestic financial system is insolvent — the Irish banks are ‘too big to save’ for the Irish sovereign. The Irish sovereign cannot ‘bail out’ the banks from its own resources and make its own creditors — the owners of Irish sovereign debt — whole.

This figure is often quoted. Ireland doesn't have these liabilities, it's that firms based in Ireland have these liabilities. These liabilities are not our liabilities.

Have these liabilities not been (or are in the process of being) transferred to the Ireland by means of the government bank guarantee and the actions of NAMA?

As I try to understand the economic difficulties in Ireland, it is difficult not to think more about the wider economy. Take the EU for example: it is a stated goal of the EU that “The ECB aims at inflation rates of below, but close to, 2% over the medium term.” Inflation is the rise in the general level of the price of goods and services over a period of time. And as goods and services cost more, we need to earn more in order to continue to be able to afford to purchase them. So we will always need more money. What we have will never be enough.

That kind of inflation level is pretty low. Plus, inflation isn't too much a problem as long as the price of your labour keeps in line with the price of the goods you're buying. So long as that's the case, (and generally speaking with inflation that low it is), then you won't even notice it; it's fine.

I agree that 2% doesn’t sound like much. What does stand out to me though is that general economic policy assumes that continuous growth is predestined. This seems implausible in a world of finite resources. And as more and more of the worlds money is tied up in debt, the numbers get larger but the value remains constant? So does increasing debt drive economic growth?

So we will always need more and more money, how can that happen? Banks just create it and we borrow it. Fractional reserve banking is practiced by all modern commercial banks. This means that only a fraction of the total deposits managed by a bank must be kept in reserve. This results in, to use the term currently in vogue, a Ponzi scheme. Or a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going. How much debt is there in the world? How much money is in circulation? How can this be in any way sustainable?

A Ponzi scheme "is a fraudulent investment operation that pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors." Banks invest money into capital, the capital earns interest, the interest pays depositors. What's fraudulent/ponzi scheme-ish about that. So the bank doesn't have all of your money right now? No biggie, so long as everyone doesn't claim their money at the same time, then everyone's fine. There's a lot of misinformation posted about the banking system on the internet in general*; you'd do well to ignore it and read an introductory economics textbook instead

I do appreciate that there is a lot of questionable information available on the internet. And I am trying to separate the wheat from the chaff. However, common sense dictates that expansion of money based on multiplication of an initial deposit can get pretty risky pretty quickly. Most of the money in any given money supply consists of commercial bank money. And commercial banks have one goal – profit. The ponzi scheme-ish part comes in when the ever-increasing flow of money required to keep the scheme going is considered.

Three basic imbalances that caused the most recent crisis of international capitalism have still not been resolved: the imbalance between finance and the real economy; the macroeconomic imbalances between major players in the international economy; and the ecological imbalance that will necessarily become a constraint on future growth, not only because of climate change but also because of other environmental problems and the demand for energy. So what can be done about these?

What do you mean, specifically, when you talk about these imbalances?

Ok, imbalance between finance and the real economy: the problems in finance remain just below the surface because they have not been adequately addressed. There are no incentives for “efficient” behaviour but there are incentives for excessive risk-taking in financial markets. The resistance to debt restructuring that would force banks to take part of the responsibility for the crisis reflects a broader inability to discipline finance, and an associated tendency to allow financial players to persist in morally questionable but financially rewarding destabilizing activities. This has direct implications for certain global markets that directly affect people’s lives, namely, the markets for food and fuel. Huge volatility in food and oil prices has resulted not so much from any real economic forces as from the involvement of financial players in those markets. This was particularly so because futures contracts led to the emergence of “index investors” who simply bet on changing prices and thus drove up prices far beyond those necessitated by any real changes in demand and supply. From mid-2008 commodity prices started falling as index investors began to withdraw, and the downturn was accentuated by the global recession. But this fall proved to be quite short-lived, as prices started rising again from early 2009, even before there was any real evidence of global output recovery. Between April 2009 and January 2010, the FAO’s Food Price Index went up by 22 per cent. Once again, this increase does not reflect real-economy forces: global supply and demand for most commodities remain broadly in balance. The recent price increase, as before, reflects heightened speculative activity in commodity futures.

There have been other negative effects associated capitalist economic growth pattern pursued for the last century. Within several developing countries, it has led to an internal “brain drain” with adverse implications for future innovation and productivity growth...

In general, economic development leads to a more varied set of possible jobs, not less, I'd say

Yes but the greatest incentive is monetary reward so it skews the numbers of bright young people who have to choose between following their passions or earning a living. Why focus on original, creative or altruistic pursuits when there is a quick buck to be made? Or for an example closer to home, how many people became property developers in Ireland … do you think they were building houses because people were short of places to live?

And now for some more statistics ...

So the world is already unbelievably unequal. And global economic strategy seems to seek to increase inequality and promote capital gains, investor returns. Developing countries...

The problem of developing countries is one which, i've learned recently, is incredibly multifaceted. To be sure, there are aspects of the global economy which havn't helped LDC's. On the other hand, there are a vast array of other, non economic factors, which go into making a country poor. In fact, once countries deal with these problems of governance and conflict, they tend to do pretty well in the world economy. And so while yes inequality exists, and yes poor countries exist, and yes exploitation exists, these are problems with economics constantly tries to deal with and solve, and often these aren't just economic problems, but social ones too.

I agree the problems can be complex. I do wonder how economic policies change to try deal with and solve these though. It doesn’t seem very transparent. It seems more like economic policies are structured in a way that provides periods of economic expansion based on the global poor subsidizing the rich. The limits of what passes for “acceptable” inequality in most societies have clearly been crossed, and future policies will have to reverse this trend. Both globally and nationally, the need to reduce inequalities must be recognized, not only in income and wealth, but also, most significantly, in the consumption of natural resources.

Think about what has happened in Ireland ... how absurd our notions of continued domestic growth seem, now translate that to what is happening globally. It seems absolutely apparent to me that sustained growth is no longer possible in the global economy. It simply serves to perpetuate and increase global inequality.

Given the recession, it's easy to believe these things. But in terms of the bigger picture, I think you're wrong. The world has been on a growth path for the last 100 years, at least. People now literally live better than kings and queens did back in the old days. Slowly, millions are being pulled out of poverty by capitalism. Even in terms of Ireland, we're still one of the richest countries in Europe; and certainly one of the richest in the world.

I think it is a bit delusional to say people now live better than kings etc. I mean sure they do but do you think if the technology that is available to us today was available ‘back in the old days’ that the kings and queens wouldn’t have been able to afford it? It is an unfair comparison. The majority of people have a better standard of living today because the general standard of living has risen thanks to technological advances. The gap between the king and his subject wasn’t as big as the gap between richest and poorest in today’s world.

Does the current ‘socio-economic system’ make sense? The very concept of money and what that has become. Is it relevant? Does it allow real progress? The resources on this planet are finite yet the global economic system assumes continuous economic growth is possible. Why do common people subscribe to this system? What will the profiteering mean for our social and environmental future? Why is the status quo unchallenged? Surely there is an opportunity for the world’s citizens and their leaders to restructure economic relations in a more democratic and sustainable way? How does any of this make sense? Am I buying into simplistic, sensationalist notions? Is everyone insane? What am I missing??

I think sustainable growth is a bit of an oxymoron, given the world has finite resources. That said, greater efficiency in the use of resources has been a hallmark of economic growth. Granted, this probably hasn't been offset by corresponding increases in consumption, but I think it is possible to wisely manage resources so that growth isn't too destructive.

Yes, I think it is possible too. But the need to reduce inequalities must be recognized, not only in income and wealth, but also, most significantly, in the consumption of natural resources. And so policies need to be more people-oriented in spirit, intent and function. Global economic institutions cannot continue to operate on the basis of an economic model that is increasingly discredited because it is so unbalanced.