On taking quotations out of context -

How many times have these words of Adam Smith been quoted in support of the neo-capitilist ideals of disaffected Americans -

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love."

Me old mates at ALD tagged a commentary at New Statesman that picks up this point and correctly places it in the context of his earlier "The Theory of Moral Sentiments".

Read the article for the detail. I recommend it.

What does deserve quotation is another (equally out of context) relating to the "political economy" from Adam Smith -

..."first, to provide a plentiful revenue or subsistence for the people, or more properly to enable them to provide such a revenue or subsistence for themselves; and second, to supply the state or commonwealth with a revenue sufficient for the public services".

Next thing will be members of the American right quoting the likes of Karl Marx's economic theories in support of their neo-neo-capitalism. The driver behind such a move might well come from this thoughtful article from Der Spiegel -

Greece is only the beginning. The world's leading economies have long lived beyond their means, and the financial crisis caused government debt to swell dramatically. Now the bill is coming due, but not all countries will be able to pay it.
...
A Huge Bubble

The world was saved, temporarily at least, but since then it has accumulated more debt than ever before in peacetime. The national deficits of the 30 members of the Organization for Economic Cooperation and Development (OECD) have grown almost sevenfold since 2007, to about $3.4 trillion today. Their total debt burden has also grown dramatically, to a record-setting $43 trillion. In the euro zone, national deficits have even grown 12-fold in the same time period, with the euro-zone countries accumulating $7.7 trillion in debt.

The current government debt bubble is the last of all possible bubbles. Either governments manage to slowly let out the air, or the bubble will burst. If that happens, the world will truly be on the brink of disaster.

When Greece faces a possible bankruptcy, the euro-zone countries and the IMF come to its aid. But what happens if the entire euro group bites off more than it can chew? What if the United States can no longer service its debt because, say, China is no longer willing to buy American treasury bonds? And what if Japan, which is running into more and more problems, falters in its attempts to pay for its now-chronic deficits?

The conditions that prevail in Greece exist in many countries, which is why governments around the world are paying such close attention to how -- and if -- the Europeans gain control over the crisis.

Now that is frighteningly close to some of the ol' probligo's worst fears. Galahs like MK should, but won't, listen.

Time to go play Gorillaz...

Inflating thoughts on economy...

I posted this on Dave Justus' thoughts on McCain and the economy -

… and as yet not one commentator (that I have heard or read) has pointed out the long term effect of these multi-billion bail-outs.

Not that anyone wants to know, but until those funds are retrieved the rate of inflation is going to increase. How do I define inflation? It is the decline in the buying power of the dollar; my dollar, US dollar, Aus dollar, British pound whatever.

How can the handouts be retrieved? Well economically it is quite simple, but politically it is very difficult.

You can regain the hand-outs from the direct beneficiaries in exactly the same way as any other loan. The difficulty is that this will impact directly the amount of money available for lending - ostensibly to businesses to make new business but just as likely to the worker down the road so that he can buy that $5000 flat screen tv… The effect is a slow burn on the fuse that the handouts tried to extinguish.

You can regain repayment of the handouts (let’s be honest, that is what they are) by balancing the government’s fiscal budget. To achieve that requires two very bitter political pills - either a cut in government expenditure, or an increase in taxes.

Now, where do Mr McCain and Mr Obama stand on those two matters? I doubt that either will ever say the truth - it would be political suicide.

I have repeated it here because there are thoughts in that which do not apply solely to the McCain (or Obama for that matter) political approach.

Dave and I had a good discussion on the line of thought here with Dave concluding that I was "talking of micro-economic effects".

I did, and still, disagree with him on that point.

In any capitalist (no, make that ANY) economy, the fundamental drivers are the people; he tangata, he tangata, he tangata! Without people to buy goods, what would the economy comprise? Robot driven factories producing very cheap widgets with no one to buy them?

The point is, anything that impacts upon the disposable income of the ordinary Joe has an immediate effect on the economy. That, for one reason, should give great favour to tax cuts from the political wing. There are other counter-vailing impacts from that direction which are not politically acceptable - and so it goes.

What makes me so hot about the likes of these political bailouts is not the use of tax-payers money, or the cause of the bailout.

Effectively, there has been some $180 billion (globally, so I am not nit-picking America here) injected into the money markets. We could rattle off all of the immediate impacts that justify the move. We could prattle all of the political rationale from here to the bank and back.

I have already lived through a period where the international monetary system got itself out of whack. It led to the agreement to drop the gold standard. Most importantly it created an international climate of inflation that ran for some eight or ten years from about 1972. In NZ, we had inflation then "stagflation" (which had nothing to do with the genesis of the deer farming industry) of up to 18% p.a., averaging about 10.5% over the period as I recall the numbers.

What did that mean to me?

Well, my income increase by about 300%. Prices for everything increased by 300%. I was no worse off, right?

WRONG!!!

The $1,000 I had in savings is now worth something like $300 in "old money".

That is the effect of these "rescue packages" that the politicans are not going to tell you.

Someone is going to pay.

That someone is you and me.