Perspectives on the global economic meltdown (Jan 26 2010)

[Carl_T]

Sanjay Ji how do you do monetary policy with gold? how do you control/increase the money supply with gold? Gold only has value because we give it value that is all.

[Sanjay M]

The answer is that you don't. Yes, gold was originally given value and adopted as a form of currency because like precious gems it was superficially attractive but also mainly hard to find. The fact that gold cannot be printed off on a printing press and arbitrarily reproduced on a political whim then forces a certain amount of discipline, but it also provides security against devaluation. Nobody can just flood gold onto the market - nobody controls gold as they do with currency. Therefore it's a strong hedge against monetary profligacy.

[Carl_T]

Yes, but we will only face deflation if we were to go back to using gold.

[Neshant]

Yes, but we will only face deflation if we were to go back to using gold.

That's the way it should be. Prices should be going down due to increases in productivity (better technology, better manufacturing process, higher productivity). Things should be getting cheaper ever so slightly every year not more expensive.

Under such a system, debt is something you think twice about before taking on. You buy something only when you need to buy it. You hire a worker only when you absolutely need to. Productivity is maximized.

Price rigging and inflating that comes from keynesian economics creates distortions in the market that ultimatley end in mega crashes. It wipes out not just the irresponsible but the responsible folks as well.

I'm sure the federal reserve knows this. But its in their interest to keep the system going. Banking cartels have established themselves as over-seers of the keynesian pyramid scheme. They get access to freshly printed money at the top of the pyramid before it gets inflated down the pyramid. Basically they profit from doing no real work other than counterfeiting money. All decision are framed with their interests in mind first and foremost and all losses transferred down the pyramid.

[Sanjay M]

We've all heard the warnings about the perils of deflation - ie. that people start hoarding their money in the hopes that things will become even cheaper to buy down the road. Consumption plunges, and unemployment rises, in a deepening spiral.

But on the flip side, lenders can afford to keep rates low, since the real cost of capital also lowers. That works in the opposite direction, and helps to set a natural equilibrium point.

As Neshant said, productivity would be maximized, employment would be optimized.

The environment would also be an important beneficiary, since people aren't engaging in wasteful spending and consumption that only burdens the planet unnecessarily.

Businesses and industry would be automatically be forced to spend more on R&D, since their sales would increasingly depend on real improvements to their products, rather than sleepwalking while relying upon keynesian monetarism to artificially stimulate sales/consumption.

Markets would be increasingly forced to zero in on value, rather than just playing stupid oscillatory cyclical games. ("The markets fell today, on news that somebody farted, but they later recouped their losses before the close of the trading session")

[Carl_T]

Neshant - with deflation things are not going to get cheaper....they will continue to get more expensive, but in real terms rather than nominal.

[Sanjay M]

Carl_T, so you're saying that without keynesian monetarism there will be less economy of scale, and thus higher real production costs. But weigh that against the costs on the environment, due to unnecessary excess production. Weigh it against the reduced emphasis on R&D, and the preservation of "business as usual". Weigh it against the extra cost of capital - ie. interest.

A non-fiat economy is more honest, more transparent, less obscured, and less camouflaged.
Market forces are based on choice, and choices are made optimally under maximum transparency.

[Neshant]

Neshant - with deflation things are not going to get cheaper....they will continue to get more expensive, but in real terms rather than nominal.

Wages will not fall faster than prices in real terms. Prices and wages eventually stabilize at a point where purchasing power reflects actual supply & demand.

Contrast that with the current state of keynesian economics where prices are being kept artificially high with inflating even while wages are declining. The worst of both worlds. What's even worse is that some chairman at the top who's totally clueless is picking winners and losers in the supposedly 'free market'.

[Pranav]

^^^ Going into a deflationary spiral is one big issue with gold.

A small positive rate of inflation (say 1%) is best for stimulating economic activity and growth, without unduly cutting into savings.

However, even bigger drawbacks with the gold standard are:

1. the nation effectively surrenders its monetary policy to holders of big stocks of gold. Such big holders of gold can acquire increasing control over the economy by causing monetary fluctuations.
2. Harder to maintain control over inflows and outflows of wealth. This becomes a national security and economic security issue. Players like George Soros get to have a field day.
3. In the gold standard days, central banks, be they government owned like the RBI, or privately owned like the Federal Reserve, always used to print more paper money than their gold reserves. Furthermore, even earn interest on that un-backed printed money. So, the gold standard does not necessarily put an end to inflation.

[RamaY]

I mentioned this earlier. Peter Drucker in one of his books (based on demographic trends) US economy will go thru a recession till 2017 (due to baby boomer trend) before it picks up for a 5-8 year rally.

[paramu]

What will happen to global trade if there is no global reserve currency? Will that automatically revert to gold standard?

[Neshant]

A small positive rate of inflation (say 1%) is best for stimulating economic activity and growth, without unduly cutting into savings.

No such stimulating or inflating is needed. Having some clueless beaurocrat at the top debasing money is the beginning of the road to financial ruin.

When productive innovations enter the market then you have economic growth. Productive innovations do not arise as a result of counterfeiting money which is a silly idea promoted by keynesian economists. It only ends up destroying the capital of the productive elements of society. Strangely these economists never claim credit for destroying the economy through malinvestments, inflating and price rigging which is where counterfeiting money will get you.

Though not a perfect choice, gold remains the best available means of preventing such rackets.

Ideally if money could be printed in strictly set quantities and no more, that would be the best alternative to gold. But too many crooks infest the system from federal reserve type banking cartels looking to set the system up to suit themselves to politicians looking to hand out taxpayer money to get themselves elected. So the only way to keep things honest is gold regardless of its minor shortcomings.

[Prem]

http://krugman.blogs.nytimes.com/2010/0 ... authority/

Madmen in Authority
Rereading my post on the folly of the G20, it seems to me that I didn’t fully convey just how crazy the demand for fiscal austerity now now now really is.The key thing you need to realize is that eliminating stimulus spending, while it would inflict severe economic harm, would do almost nothing to reduce future debt problems. Here’s the IMF’s estimate of sources of the growth in debt over the next few years.
So how much we spend on supporting the economy in 2010 and 2011 is almost irrelevant to the fundamental budget picture. Why, then, are Very Serious People demanding immediate fiscal austerity?The answer is, to reassure the markets — because the markets supposedly won’t believe in the willingness of governments to engage in long-run fiscal reform unless they inflict pointless pain right now. To repeat: the whole argument rests on the presumption that markets will turn on us unless we demonstrate a willingness to suffer, even though that suffering serves no purpose.

[Prem]

http://www.americablog.com/2010/06/ques ... nswer.html

i think Krugman has made a remarkable observation — that the G20 aristocracy has joined the Pete Peterson glee club and choir. Reduce debt now! Strangle government now! And in the midst of a world-wide economic recovery at that. It is indeed astonishing. And Krugman asks the right question — Why? So let me pass to you, dear readers, the task Krugman avoids. If the aristocats (hunting for a more up-to-date title here) haven't all gone mad, how does it achieve their goals to strangle this toddler recovery? I don't have an answer; I really don't. But I don't accept Krugman's easy out. Remember, the goal of the aristocracy is to remain in power and to pass that power to their children. Does killing the economic comeback achieve that goal? Or conversely, does its murder avoid a feared outcome? What is the threat inherent in this recovery? What do they see that we're not seeing? Given the scope of the consequences, I think it's important we figure it out. Your thoughts?

[Sanjay M]

A small positive rate of inflation (say 1%) is best for stimulating economic activity and growth, without unduly cutting into savings.

No such stimulating or inflating is needed. Having some clueless beaurocrat at the top debasing money is the beginning of the road to financial ruin.

When productive innovations enter the market then you have economic growth. Productive innovations do not arise as a result of counterfeiting money which is a silly idea promoted by keynesian economists. It only ends up destroying the capital of the productive elements of society. Strangely these economists never claim credit for destroying the economy through malinvestments, inflating and price rigging which is where counterfeiting money will get you.

Though not a perfect choice, gold remains the best available means of preventing such rackets.

Ideally if money could be printed in strictly set quantities and no more, that would be the best alternative to gold. But too many crooks infest the system from federal reserve type banking cartels looking to set the system up to suit themselves to politicians looking to hand out taxpayer money to get themselves elected. So the only way to keep things honest is gold regardless of its minor shortcomings.

Exactly - trying to artificially force spending by artificially forcing inflation is just another form of command economy. That's like saying that the govt should artificially force people to vote by artificially stealing away 1% of the ballots.

If the govt has to intervene, let it by through a policy of forcing innovation. That innovation can then be the basic driver of consumption, rather than monetarist policy that may end up diverting money elsewhere other than productive innovation.

The quest for quantum encryption is likewise driven by the hope that the physical barrier against tampering with quantum systems would be a safety wall. Similarly, the physical constraint of a monetary system linked to a rare precious commodity, would offer similar protection of wealth.

Monetarist power can easily be abused, as evidenced by all the people cursing Greenspan for not being a satisfactory "benevolent dictator". Now that socialist populist state-interventionists are fully onto the monetarism game, nothing stands in the way of them misusing it to the fullest. The market will be forced to move increasingly back towards gold, if only out of this realization.

My point is, given this being the case, then why not try to bring the modern technologies of monetary exchange to the world of gold? These days, putting your money in gold means having it tied down, because gold isn't liquid. But why can't gold be made liquid, using modern digital payment technology?

Start off small first, introducing your digital gold payment system to goods and services providers first, as a parallel means of payment. Then gradually spread this ecosystem outwards, even creating stock exchanges that likewise accept trades in gold. Keep digital gold as a parallel payment channel, to eventually wean people away from existing money exchange.

[Pranav]

A small positive rate of inflation (say 1%) is best for stimulating economic activity and growth, without unduly cutting into savings.

No such stimulating or inflating is needed. Having some clueless beaurocrat at the top debasing money is the beginning of the road to financial ruin.

When productive innovations enter the market then you have economic growth. Productive innovations do not arise as a result of counterfeiting money which is a silly idea promoted by keynesian economists. It only ends up destroying the capital of the productive elements of society. Strangely these economists never claim credit for destroying the economy through malinvestments, inflating and price rigging which is where counterfeiting money will get you.

Though not a perfect choice, gold remains the best available means of preventing such rackets.

Ideally if money could be printed in strictly set quantities and no more, that would be the best alternative to gold. But too many crooks infest the system from federal reserve type banking cartels looking to set the system up to suit themselves to politicians looking to hand out taxpayer money to get themselves elected. So the only way to keep things honest is gold regardless of its minor shortcomings.

A small positive rate of inflation discourages those who want to keep their wealth "under the mattress". They should, instead, keep it in a savings account and earn 4% - 1% inflation = net 3%.

It also has the effect of penalizing black money, which cannot be kept in the banking system.

If you go on a gold standard, you are surrendering to the crooks who control large stocks of gold.

By deciding on a large and diverse basket of goods and services, and then controlling money supply to target say a 1% inflation, you can take away much of the discretion and therefore the scope for bureaucratic abuse.

[Sanjay M]

A small positive rate of inflation discourages those who want to keep their wealth "under the mattress". They should, instead, keep it in a savings account and earn 4% - 1% inflation = net 3%.

But the flipside to the money-in-the-mattress hazard is in the banking industry which can lazily count on depositors flocking to them, taking them for granted as a captive audience.
And if you look around you, it is this very banking industry whose ethics and practices have decayed. Apparently, the potential for competition between the banks hasn't prevented them from colluding on things like Credit Default Swaps. Given that trap, the money might have found a better home in the mattress, than in the pockets of the banks' cronies - at least then it wouldn't have disappeared.

Besides, isn't the ever present danger of theft its own incentive to not store money in your mattress? Also, the convenience of aforementioned electronic banking services (debit cards, etc) is another incentive for you to keep your money with them. So, the stick of 1% inflation is then made obsolete by the advent of newer carrots.

I'd also make one more argument about the Old Man and his Matress, by using India as a metaphor. India is today more solvent than the liberalized countries because its capital controls kept it insulated from world markets, and ultimately their contagion. Now that disaster has struck, everybody around the world is lining up to get to know Old Man India, and get a peek at his money mattress. Everybody wants to know us - Goldman Sachs wants to know us, and come invest here. The Old Man with the Mattress is suddenly very popular when the banks have gone belly-up. So arguably, an old man and his mattress are a form of reserve of last resort, when everybody else has done the unthinkable and run dry.

It also has the effect of penalizing black money, which cannot be kept in the banking system.

If you go on a gold standard, you are surrendering to the crooks who control large stocks of gold.

1% is not that big of a penalty for the criminal underworld. I don't think D Company is fretting over 1% losses. They launder it all anyway.

By deciding on a large and diverse basket of goods and services, and then controlling money supply to target say a 1% inflation, you can take away much of the discretion and therefore the scope for bureaucratic abuse.

Monetarism has created its own bureaucracy, and an ever-growing number of free-riders.
In the new age of Federal bailouts for all and sundry -- bailout for careless banks, bailout for GM, bailout for airlines, bailout for borrowers - even NewYorkTimes wanted a bailout - hell, I even posted an article here about Pakistan saying it deserved a bailout from the US govt -- the time of safe monetarism is long gone. Now the monetary-gluttonous wolves can be caged no longer. You need a physical barrier against abuse - a return to physical tangible-goods-based standard like gold. Otherwise, the new generation of self-justifying thieves will rob everyone blind. You need a physical system that prevents this licensed counterfeiting, otherwise everyone will be awarding themselves a license to do it. The bailout taboo has been broken, and now from here onwards there's just a slippery slope downward.

If you can't stuff your money in a mattress, then your money is going to be handed over and used to bail somebody else out - somebody with more political clout and connections than you. This will be done entirely at your own expense, of course - unless you can cajole the same govt to give you a bailout. And then where will we be? In a race-to-the-bottom, to see who can get more money bailed in their direction?

"I dejerve quota! I am more greedy - I mean, needy - than you!"
"No, I dejerve more rejervation than you! I am lower caste than you!"
"No! I am the lowest of all! Nobody is more pathetic than me! Give all their quota shares to me instead!"

Yeah, I think we've seen this before.

[Pranav]

^^^ In the US, there has been a failure of regulation - in India, the regulation had not been dismantled. If the government is supposed to protect the depositor, then one does need robust regulation.

Also, problems in the US are exacerbated by the fact that the guys who own the banks also own the government. So the guys who should be getting water-boarded are the guys getting the bail-outs. Going onto a gold standard will only increase their grip (especially if you allow private parties like the Federal Reserve to issue supposedly gold-backed currency).

[Sanjay M]

Just like quantum encryption, or oceanic divides, or the solid walls that make up your home, you have to resort to a physical system that can't be breached by Man's own penchant for creative dishonesty. If you can create a robust barrier, this will allow the responsible to move upward and the irresponsible to move downward. Otherwise, we're all heading for Greek/Pak budgetary accounting standards.

Regarding who owns the govt, I'd then say that personal exercise of economic choice is going to have to be taken out of the hands of govt, and the best way to do this would be to use modern digital technology to abet the rise of a securitized monetary transaction system ("securitized" as in backed by something secure - in this case, the physical tangibility of gold.)
Again, the ubiquity of secure digital networks is then the modern innovation that makes this possible. That which is digitized, is essentially liquid. As long as you've got secure encryption, which is no more likely to be hacked than what's in place for regular electronic money transactions, then you can spread your new parallel system of payment throughout the economic ecosystem until it spans the same full gamut that the existing system of fiat money does.


Yes, you can argue that those starting off with more gold to begin with can distort the system by flooding the markets with that gold, but they can only do that at the cost of losing that very stockpile they had. Nobody has unlimited quantities of gold, nor such large stockpiles that they can lord it over everyone else for long. Because gold is very mature, and has been dug up from most of the Earth's surface, then there aren't many big motherlodes still waiting to be found - not any that can imbalance the existing market supplies, anyway. This is a far cry from today's printing-press economics and monetary gamesmanship.

By not having a physically securitized monetary system as a clearly delineated barrier against counterfeiting, then there is no way to overcome the widening gyrations of keynesian creativity. The entropy of monetary populism would ultimately sweep responsibility aside.
You need a Lakshman Rekha.

[ramana]

Guys don't fly off handle in this thread. Tone down the rhetoric and language.

[Neshant]

A small positive rate of inflation discourages those who want to keep their wealth "under the mattress". They should, instead, keep it in a savings account and earn 4% - 1% inflation = net 3%.

Donating my surplus to a banking crook under duress of having it confiscated from me through inflation does not grow the economy. It only perpetuates a totally useless middle man industry namely financing & high rolling that makes the real producer of wealth poorer.

How can you earn 4% when the clueless guy you are handing the money to is playing a casino game betting with your chips and losing a good portion of it. -4% is his cut (for doing nothing) and -10% on top of that is your real loss by the time he's done gambling. The only pocket the middle man will be filling is his own.

If anyone should be doing the handing out of money, it should be the person who earned it. He chooses to invest it only when he sees a profitable opportunity.

Inevitably, the people who are producers accumulate gold and the people who are deadweight accumulate none. Its a system highly disliked by the parasitic financial middle man industry as it makes it difficult to skim money off the real producers of wealth in society by playing the counterfeiting & paper shuffling game.

Because gold is honest money, it is disliked by dishonest men.

[svinayak]

Before WWI there was a economic crisis, before the WWII there was a economic crisis, and now we have world economic crisis - next is WWIII.

The objective of the globalisation programme is to do away with independent nations and turn them into interdependent member states of a single world Corporatist/Socialist order with a single integrated global economy. This requires governments to implement policies which progressively hand over ownership and control of their national economy, banks, big business and industry, public utilities, and farming sector, to global interests; and to surrender their political, legal, and cultural sovereignty to so-called 'institutions of global governance' and ultimately the United Nations world government.

If the program were to be written out as it has to be implemented by national governments.

[Pranav]

Using encryption etc will not prevent parties from issuing more money than backed by their physical gold. We've been there, done that, in the middle-ages.

Also, holders of large stockpiles of gold, by causing monetary fluctuations, can go on continuously increasing their assets.

A much more robust barrier is to have a large, diverse and publicly declared basket of goods and services for which price stability shall be maintained. That is much harder to manipulate than a single commodity like gold, which is relatively easy to monopolize.

[Pranav]

A small positive rate of inflation discourages those who want to keep their wealth "under the mattress". They should, instead, keep it in a savings account and earn 4% - 1% inflation = net 3%.

Donating my surplus to a banking crook under duress of having it confiscated from me through inflation does not grow the economy. It only perpetuates a totally useless middle man industry namely financing & high rolling that makes the real producer of wealth poorer.

How can you earn 4% when the clueless guy you are handing the money to is playing a casino game betting with your chips and losing a good portion of it. -4% is his cut (for doing nothing) and -10% on top of that is your real loss by the time he's done gambling. The only pocket the middle man will be filling is his own.

If anyone should be doing the handing out of money, it should be the person who earned it. He chooses to invest it only when he sees a profitable opportunity.

Inevitably, the people who are producers accumulate gold and the people who are deadweight accumulate none. Its a system highly disliked by the parasitic financial middle man industry as it makes it difficult to skim money off the real producers of wealth in society by playing the counterfeiting & paper shuffling game.

Because gold is honest money, it is disliked by dishonest men.

The banker need not be a crook, the crookedness is a result of the failure of regulation. You need an intermediary to connect savers and entrepreneurs. You will not get rid of crookedness by going on a gold standard. In fact, you will get your monetary system jerked around by international speculators of the Soros variety, with even fewer safeguards than exist today. Recall that the US was on the gold standard at the time of the last Great Depression.

[RoyG]

Pranav,

The Great Depression was caused by government intervention...not the gold standard.

[Carl_T]

Before WWI there was a economic crisis, before the WWII there was a economic crisis, and now we have world economic crisis - next is WWIII.

The objective of the globalisation programme is to do away with independent nations and turn them into interdependent member states of a single world Corporatist/Socialist order with a single integrated global economy. This requires governments to implement policies which progressively hand over ownership and control of their national economy, banks, big business and industry, public utilities, and farming sector, to global interests; and to surrender their political, legal, and cultural sovereignty to so-called 'institutions of global governance' and ultimately the United Nations world government.

If the program were to be written out as it has to be implemented by national governments.

Do you seriously believe things like this?

[svinayak]

Do you seriously believe things like this?

Can you elaborate.

[Pranav]

Pranav,

The Great Depression was caused by government intervention...not the gold standard.

It was caused by the privately owned Fed, in collusion with the Bank of England. The gold standard makes such depredations difficult to prevent.

[RoyG]

Pranav,

The Great Depression was caused by government intervention...not the gold standard.

It was caused by the privately owned Fed, in collusion with the Bank of England. The gold standard makes such depredations difficult to prevent.

You're right. The Fed was responsible for creating the bubble in the 20's due to its reckless monetary policies. When the economy started to plummet late 20's, Hoover decided to intervene in ways that he thought would pull us out of the slump. However, this was just a temporary fix and actually ended up prolonging the recession/depression. When FDR came into the picture he merely replicated what Hoover had done except on a grander scale. If they had just done nothing, the market would've corrected the problem and the severity and duration of the recession/depression would have been far less.

The US has gone through many panics and economic downturns before the great depression. However, the difference was they typically lasted about 1-2 years. This is b/c we didn't have the FED and there was a lack of gov intervention. The market was simply allowed to correct itself. I feel that the gold standard is great b/c gold and and other precious metals have always been considered valuable. By reverting back to the gold standard, prices would adjust to the quantity of gold. Moreover, the gov can't just overprint like it is now. It would instead rely upon an efficient borrowing and taxing system.

[svinayak]

I feel that the gold standard is great b/c gold and and other precious metals have always been considered valuable. By reverting back to the gold standard, prices would adjust to the quantity of gold. Moreover, the gov can't just overprint like it is now. It would instead rely upon an efficient borrowing and taxing system.

Ambitious countries and colonial powers have to borrow more to keep their area under control. They cannot peg their currency to a metal which is limited in qty. So this will create bubble and create unstability and change the economic order. This has been the method for the last 250-300 years. This cycle has to break if there has to be balance and order in the world system.

[RoyG]

I feel that the gold standard is great b/c gold and and other precious metals have always been considered valuable. By reverting back to the gold standard, prices would adjust to the quantity of gold. Moreover, the gov can't just overprint like it is now. It would instead rely upon an efficient borrowing and taxing system.

Ambitious countries and colonial powers have to borrow more to keep their area under control. They cannot peg their currency to a metal which is limited in qty. So this will create bubble and create unstability and change the economic order. This has been the method for the last 250-300 years. This cycle has to break if there has to be balance and order in the world system.

huh? o_O

[SwamyG]

Before WWI there was a economic crisis, before the WWII there was a economic crisis, and now we have world economic crisis - next is WWIII.

The objective of the globalisation programme is to do away with independent nations and turn them into interdependent member states of a single world Corporatist/Socialist order with a single integrated global economy. This requires governments to implement policies which progressively hand over ownership and control of their national economy, banks, big business and industry, public utilities, and farming sector, to global interests; and to surrender their political, legal, and cultural sovereignty to so-called 'institutions of global governance' and ultimately the United Nations world government.

If the program were to be written out as it has to be implemented by national governments.

Do you seriously believe things like this?

One does not have to believe in CTs; just look at what is happening around. As they would say in Hindi "sab mile huyae hain". The Big 3 rating agencies have been under scrutiny for their role in the economic collapse. Traditional bankers, investment bankers, regulators, government (as in politicians and elected officials), hedge funds, rating agencies, investors, mortgage companies, insurance companies, realtors, media itiyadi all have played small if not large role in the recent crisis.

It is commonly considered that the corruption in Maasa (and possibly in the West or developed countries) do not impact the aam admi as in desh. In desh one has to bribe or grease people to get gas cylinder connections, telephone, water itiyadi. But I think the thought that corruption does not impact aam jane and joe in the West is a fallacy.

The Union Carbide verdict is a joke, right? Both the Public (a.k.a the government) and the Private are some way responsible. If Corporations can be considered as an organism, then this organism has benefited us humans in the last 100-150 years definitely. Humans have become do dependent on this organism. Now the organism requires us constantly us to feed it. We have no choice.

[svinayak]

http://www.salon.com/news/opinion/featu ... rail_lind/

Economics
TUESDAY, JUN 8, 2010 09:01 ET
Goodbye, bullet trains and windmills
Progressive thinking about energy and infrastructure spending needs to get reality-based in a hurry
BY MICHAEL LIND

Reuters
The U.S. economy is in trouble. Disappointing employment growth figures show that mass unemployment may be with us for some time. The stimulus spending in the U.S. was far too small and depended too much on tax cuts. State budget crises that result primarily from the Wall Street-created global crash, not statehouse mistakes, may yet cripple the economy, as the effect of federal stimulus spending wears off.

All of this strengthens the case for more government spending for years to come. After bailing out the states, the best use of federal dollars would be massive public investment in infrastructure that increases long-term U.S. economic growth. Like other capital improvements, infrastructure investment should be financed not by current taxes but rather by federal, state and local government or agency bonds. In the case of infrastructure assets that deliver benefits for generations, it makes sense to borrow in order to build them and to pay down the debt over decades. The faster the economy grows as a result of infrastructure investment, the less burdensome debt service will be. And we know from 200 years of experience that falling transportation costs and plummeting energy costs are among the major drivers of economic growth.

Unlike most conservatives and libertarians, most progressives support large-scale public investment in transportation and energy infrastructure to prop up aggregate demand in the short run and enhance national productivity in the long run. They are right to do so. Unfortunately, the progressive movement in the U.S. tends to focus its advocacy on the wrong infrastructure projects.

The center-left consensus favors massive government investment in an uneconomical form of transportation -- fixed-rail, in the form of light rail or high-speed intercity passenger rail -- and in uneconomical renewable energy sources: solar, wind and biomass. Why these particular infrastructures, rather than others? The answer is the fusion, in the last decade, of two previously distinct post-'60s activist movements on the left: urbanists, who despise suburbs, and Greens, who despise automobiles and airplanes. Many liberals have unthinkingly treated the goals of these single-issue movements as their own. But one can be a liberal in good standing -- by, for example, supporting a living wage, universal social insurance, and government-backed manufacturing policy -- and still reject the infrastructure agendas of urbanists and greens.

High-speed rail is the transportation technology of the future -- and always will be. In his 1964 State of the Union address, President Lyndon Johnson called for a national system of high-speed trains. Nothing happened. Then in the 1970s President Jimmy Carter repeated the call. Nothing happened. Then in 2009, President Barack Obama dusted off a bizarre map from the Carter administration, which for some reason had a high-speed connection between Houston and New Orleans rather than Houston and other Texas cities, and proclaimed that this was his plan. Then something finally happened -- but not much. The federal government announced modest funding for relatively short high-speed rail routes that might, if they are ever built, get tourists to Las Vegas and Disneyworld slightly more rapidly than before.

High-speed rail in America is perpetually discussed and never built. There are two explanations. One, known as the "Roger Rabbit" theory, after the conspiracy theory about the decline of mass transit found in the movie "Roger Rabbit," holds that a conspiracy of oil companies, automobile manufacturers and real estate interests took over the U.S. government around World War II and killed off trolleys and passenger trains. The less dramatic but real reason is that federal and state officials repeatedly have concluded that the costs of high-speed rail proposals outweigh the benefits.

A train is a kind of expensive, pre-modern bus or truck caravan that can never change its route because it is fastened to the road. As nations grow more affluent, their people prefer the convenience of personal automobile transportation to the inflexibility of mass transit. This chart shows that the countries whose inhabitants rely the most on mass transit are poor ones -- Russia, China, Mexico. People in rich countries like Germany and Japan are much less likely than people in poor countries to use mass transit. Mass transit is used least by the inhabitants of the U.S., Canada and Australia, where low population densities make long-distance air and car travel more practical than passenger rail at any speed.

The tiny minority of Americans who regularly use mass transit rely chiefly on buses, not rail. Despite all the subsidies showered on Amtrak, private, unsubsidized bus service from Washington to New York is far less expensive than train travel. One-third of the people in the U.S. who take mass transit every day, and two-thirds of those who commute by rail, live in the New York metro area. In the unlikely event that other metro areas in the remote future become as dense as the New York region, more fixed rail transit might become practical. Until then, those who favor mass transit should favor cheaper and more flexible bus rapid transit, even if buses are less glamorous than bullet trains.

If fixed-rail mass transit is a transportation technology of the 19th century rather than of the 21st, what transportation investments make sense? The U.S. needs to reduce its imports and grow its exports by expanding its tradable goods sector. The emphasis should therefore be on lowering the costs of freight transportation, not on getting people out of cars and into trains. It is far more important to get goods from American factories, farms and mines to container ships bound for foreign consumers at lower cost than it is to cut five minutes off the daily commutes of office workers in New York and New Jersey. Focusing on freight infrastructure improvements means that, among other things, we need to build more highway lanes and in some cases new highways for the trucks that will continue to carry most freight. It also means paying for port expansion, freight rail modernization and upgrading our crucial but frequently ignored inland waterway system.

And passenger travel? Unless the U.S. shuts down immigration, the U.S. population is likely to grow to 400-600 million by 2050. If anti-sprawl campaigners try to prevent the construction of new roads to accommodate a few hundred million more Americans, they will fail. In addition to building more roads for passenger use as well as freight transportation, we need to build more airports in the U.S. to relieve congestion. Asphalt destined for highway and airport expansion lacks the gee-whiz factor of high-speed bullet trains, but it is much more important to the future of our economy. And asphalt has unimpeachable liberal credentials. Although Dwight Eisenhower gets the credit, it was Franklin Roosevelt who planned and lobbied for the interstate highway system that many of today’s urbanists and environmentalists denounce.

Concrete’s liberal pedigree is as impeccable as asphalt’s. Along with their nostalgic fixation on rail, the obsession of many progressives with non-hydroelectric renewable energy sources like solar and wind power is a relatively recent deviation from the more sensible New Deal liberal tradition. In the 1930s, Franklin Roosevelt presided over the most massive hydroelectric power dam construction projects in the world at the time. At Roosevelt’s instigation the U.S. government literally invented nuclear power with the Manhattan Project. It was only in the 1970s, when romantic environmentalists rooted in the older liberal Republican subculture gained influence in the Democratic Party, that Democrats began to demonize the energy sources and transportation modes favored by New Deal liberalism: dams, nuclear power plants, highways and aviation.

Beginning in the Carter years, it has become an article of faith among many liberals that we must replace fossil fuels and nuclear energy with renewable energy. In 1979, President Carter predicted that solar power in 2000 would contribute 30 percent of U.S. electricity. Today in 2010 solar power contributes less than 1 percent. Renewable energy generates around 10 percent of U.S. electricity and the overwhelming majority of that, nearly 7 percent, comes from the hydroelectric dams that many greens detest and want to dismantle. The second biggest source of renewable energy is inefficient, land-consuming biomass. Wind, geothermal and solar energy combined add up to little more than rounding errors.

According to the Energy Information Agency, in 2035 two-thirds of U.S. energy will come from coal and natural gas. Nuclear energy will provide another 20 percent. Renewable energy -- mostly from dams -- will rise from 8 percent today to around 14 percent. Wind and solar generation will still be rounding errors. There is no public support in the U.S. or any other industrial democracy for the combination of self-imposed austerity and massive subsidies that would be necessary to create an economy based on renewable energy.

What about global warming? Natural gas and nuclear energy, not wind and solar, should be central to the shift toward clean energy. Natural gas emits less than half the greenhouse gases that coal does and no particulate pollution. Nuclear energy emits no greenhouse gases at all. That is why rational greens including Stewart Brand, founder of the Whole Earth Catalogue, and James Lovelock, author of the Gaia theory, support nuclear power plant construction. Each technology has its problems -- natural gas fracking can contaminate groundwater, and nuclear waste must be stored safely and kept out of the hands of terrorists. But as Robert Bryce has argued in his important new book, "Power Hungry," anyone who is serious about reducing greenhouse gas emissions should support replacing coal in generating electricity with natural gas in the short run and with nuclear energy in the long run. While Bryce thinks that solar energy might play a minor role in the future, he emphasizes that, thanks to laws of physics that technology can never overcome, both solar and wind power require vast amounts of acreage for collection in order to produce meager amounts of energy: "More than 2500 skyscraper-sized wind turbines, spread over 500 miles of terrain, and a passel of natural gas units at 90 percent of wind’s maximum output -- and hundreds of miles of new transmission lines/voltage regulation -- would be required to provide parity with the capacity of a single 1500MW nuclear facility."

When it comes to energy issues, the Obama administration has been more reasonable than many of its supporters. True, the administration was embarrassed by its authorization of more offshore drilling shortly before the catastrophic BP spill. But President Obama and Energy Secretary Chu have supported loan guarantees for nuclear power plant construction and recognize that natural gas should play a greater role in the American energy mix.

The greatest economic crisis since the Depression shows no signs of ending soon. A major, long-term program of public investment is needed more than ever. But the public investments must pass the reality test. And the harsh reality is this: There isn’t going to be a significant high-speed rail system in the U.S. in the near- or medium-term future. There isn’t going to be a continental electric grid permitting solar panels on condo buildings in Berkeley, Calif., to power heirloom-poultry farms in Maine. Most Americans are not going to sell their cars and move back from the suburbs to the cities in order to live in tiny apartments or condos and ride the rails to work. These are romantic daydreams that Democrats could afford to indulge only as long as they were out of office and were not responsible for results.

During the Bush years, liberals took pride in describing themselves as "reality-based." When it comes to transportation and energy, the American center-left needs to get reality-based in a hurry.

Michael Lind is policy director of the Economic Growth Program at the New America Foundation.

[RoyG]

I feel that central banks are coordinating with each other and resorting to the printing press as a last ditch attempt to avert another global economic crisis. However, I don't see any evidence that they are trying to unify all the countries of the world into a single union governed by the UN. The whole world gov thing reminds me of other conspiracy theories and scares like 2012, Roswell, SARS, West Nile, bird flu, moon landings, vaccinations, DDT, microwave ovens, nuclear power, Ozone layer, etc etc.

[paramu]

One does not have to believe in CTs; just look at what is happening around. As they would say in Hindi "sab mile huyae hain". The Big 3 rating agencies have been under scrutiny for their role in the economic collapse. Traditional bankers, investment bankers, regulators, government (as in politicians and elected officials), hedge funds, rating agencies, investors, mortgage companies, insurance companies, realtors, media itiyadi all have played small if not large role in the recent crisis.

What shows that there is no CT but only reality is that nobody involved in this corruption chain is paying price for their roles. But people are still suffering.

[svinayak]

I However, I don't see any evidence that they are trying to unify all the countries of the world into a single union governed by the UN. The whole world gov thing reminds me of other conspiracy theories

Dont get workedup on CTs and other things. Just follow the facts and things will become clear.

Start with financial history of the world - The Ascent of Money: The Financial History of the World is Harvard professor Niall Ferguson's book, published in 2008,

[RoyG]

I've read it.

[svinayak]

These are the chapter in that book

Ep. 2: Human bondage
How did finance become the realm of the masters of the universe? Through the rise of the bond market in Renaissance Italy. With the advent of bonds, war finance was transformed and spread to north-west Europe and across the Atlantic. It was the bond market that made the Rothschilds the richest and most powerful family of the 19th century. And today governments are asking it to bail them out.
Ep. 3: Blowing bubbles
Why do stock markets produce bubbles and busts? Professor Ferguson goes back to the origins of the joint stock company in Amsterdam and Paris. He draws telling parallels between the current stock market crash and the 18th century Mississippi Bubble of Scottish financier John Law and the 2001 Enron bankruptcy. He shows why humans have a herd instinct when it comes to investment, and why no one can accurately predict when the bulls might stampede.
Ep. 6: Chimerica
Niall Ferguson investigates the globalisation of the Western economy and the uncertain balance between the important component countries of China and the US. In examining the last time globalisation took hold – before World War One, he finds a notable reversal, namely that today money is pouring into the English-speaking economies from the developing world, rather than out.

http://www.nybooks.com/articles/archive ... re-a-dime/

Raising finance and expanding empire became the goal of european countries. It was sustainable until it was no longer affordable and doable. Now from the last 100 years they are working on a global structure which will create quotas for each country. With more population the order needs change. By controlling the money supply and investment countries can be forced to adopt policies which subjugate their population.

[RoyG]

I agree with him especially about how "money is pouring into the English-speaking economies from the developing world..."

But, I feel that this will soon change b/c of a resurgent Asia with higher savings and productivity and a steadily increasing young population.

The West with its huge debt and lack of industry will go to war while printing its way into the grave.

They had a good run for about 300 years.

Now its our turn again for a couple thousand lol.

[SwamyG]

One does not have to believe in CTs; just look at what is happening around. As they would say in Hindi "sab mile huyae hain". The Big 3 rating agencies have been under scrutiny for their role in the economic collapse. Traditional bankers, investment bankers, regulators, government (as in politicians and elected officials), hedge funds, rating agencies, investors, mortgage companies, insurance companies, realtors, media itiyadi all have played small if not large role in the recent crisis.

What shows that there is no CT but only reality is that nobody involved in this corruption chain is paying price for their roles. But people are still suffering.

'Persons' who are humans will pay the price for their crime, 'Persons' who are corporations will only have to dissolve with minor punishments. Socialization of the punishment - society bears the price. The leaders move to another organization or retire. Very few land in jail.