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ECONOMICS & POLITICS 101 (1 of 2)

March 23, 2013

A modern society works at growing food, making things and providing services for people. Money is divided among people as agreement and reward in relation to what they do. Of primary importance to a society is the doing, and what is done in all the specifics to a great extent makes the society what it is. Money is just the lubricant in the machine. It's not the fuel. Money has been many things, cowrie shells, commodities like diamonds, pearls, silver or gold, and modern printing has made possible money as numbers of government issued paper. Paper money has an advantage as money over commodities in that its values doesn't fluctuate with supply or lack of supply.

The numbers on paper money represent an agreed to value for an entire society, but with the currency called the euro the agreed value applies to all countries that are members of what is called the eurozone. Individually these countries lack the power to make the value of their currency whatever crisis circumstances bring to power leaders who want to do so. What such a country can do is leave the eurozone and go back to its original currency.

Currencies are traded internationally. People holding dollars may want to buy Swiss Francs believing that the value of Swiss Francs are rising relative to the dollar. Nations in economic crisis may let the value of the money fall internationally. This would make the goods they sell abroad cheaper and the wages of their workers lower compared to workers internationally, but the leaders of the nation going off the euro might be making their currency a better lubricant for their own society.

Whether the people of any country in the eurozone – including Greece or Cyprus – will vote in leaders who take their country out of the eurozone remains to be seen. The voters will be doing so believing they are acting in their own interest rather than the interests of Eurozone bankers and other big money investors.

July 10, 2012

In the world are people with a lot of money. They try to make money with their money. They buy stocks and bonds. They speculate on commodities, maybe gold and oil, hoping the price will rise so they can sell at a high and profit thereby. We could call them speculators. Some are hardly that. They have just a little extra money and they're smart enough to put their savings where it will earn more than measly bank interest. Many others who invest their money are very wealthy. Wealth distribution is much talked about these days. In the United States, it is said, 80 percent own only 7 percent of financial wealth and the top 1 percent own 42.7 percent.

The not so wealthy may be wage earners paid in a division of wealth agreement with their employers – whatever their employers have agreed to pay them. Usually the employer pays only what he must to keep his employee from going elsewhere for work. He's running a business not a charity.

There are banks that are supposed to have money, and they try to make money with this money by lending it to people who are supposed to pay it back with interest. These kind of banks in the United States, Europe and elsewhere are corporations, privately owned by shareholders who are mostly very wealthy.

There are borrowers. People buy on credit so they don't have to wait to accumulate money before buying something. Occasionally someone borrows money to start a new business, and because of competition their business might fail. There is only so much room for success in selling stuff.

Governments also borrow money to pay its bills. Politicians might put their government in debt by paying for a war or paying for programs to please would be voters. And lately a lot of governments have become deep in debt. As of 2011, Japan's government owed money that was a little more than twice the size of the country's annual economic activity: 208 percent of its annual Gross Domestic Product (GDP). The government of the United States for 2011 owed money equivalent to 69.4% of its annual GDP.

Denmark like Japan is a state the spends a lot on public welfare. But its government in 2011 was only 46.5 percent of its 2011 GDP. Denmark does not have the division of wealth that Japan and the US do. Difference in family incomes within Denmark is rated at 133rd out of 140 countries — the higher rank number representing more equality, the lower rank number representing less equality. This is the Gini Index (top ten and bottom ten rankings). Japan's Gini index ranking is 75th in the world. The US index ranks as less equal, at 42 (between Uruguay and Cameroon). Denmark has been getting by with extensive government spending and relatively low government debt by having a higher tax burden that Danes are willing to bare for their mutual benefit.

Denmark is doing better than Greece, for example, where a lot of people do what they can, including lying, to avoid paying taxes. Greece is in trouble not so much because the average Greek is living more luxuriously than the average Dane. The average Greek is struggling. "The average Greek worked 2116 hours in 2008, while the average German worked 1426 hours," writes the New York Times. Greece is in trouble because the Greek government has failed at collecting enough revenue to match expenses. Government debt in 2011 in Greece was 165.4 percent of its annual GDP. Greeks with money have contributed to the problem with continued tax evasion and looking out for their own interest by sending their money abroad. Greece's economy has declined, which means even less revenue for the government. Rather than the government going after people with considerable wealth, the government has pursued an austerity that impacts Greeks with little money, and this has energized the political left in Greece.

Spain is also struggling, not so much because of excessive borrowing but because of the activities of a leading British newspaper, the Guardian, describes as "... property developers and land speculators, together with the senior bank staff who made [bad] loans." Banks borrowed money from international lenders in order to make more loans to developers and home buyers – an exuberant financial run-around that collapsed. Now employers are not hiring, cutting wages and working their staffs harder. These banks are being bailed out, drawing money from others pools of accumulated money in Europe. Economies are running on financialization, and there is fear that continuing economic crisis in Spain will burden the world of finance and prevent the economic growth that allows debts to be paid and financiers to continue investing rather than hiding their money somewhere.

The question of division of wealth, taxation and government spending is now being debated in the United States, along with the question of banking regulations.

July 11: Eurozone finance ministers have agreed to give 30 billion euros to Spain's troubled banks by the end of the month and to give Spain's government an extra year – until 2014 – to reach its budget targets. Spain's center-right government announces austerity measures (increased sales tax and spending cuts) to satisfy the big-money people behind the bank bailout. BBC News writes that, "European leaders want to see a credible Spanish plan for viability and deficit reduction." Labor, led by miners, are protesting in the streets. They don't care what does and does not satisfy big-money people; they don't want the average Spaniard carrying any more burden in the crisis created by big-money people.

July 12: Mitt Romney told the NAACP yesterday, "...your friends who like Obamacare, you remind them of this, if they want more stuff from government tell them to go vote for the other guy-more free stuff. But don't forget nothing is really free." Romney's remark is hot air, and insulting some think to the NAACP. No one believes that anything provided by the government is free. So why say it? In Sweden, Denmark, Germany and Australia, countries with more extensive welfare programs than the United States (and carrying less debt than the United States), government programs are paid for by higher taxes. Romney would have been talking sense if he had said, "If they want more stuff from government, tell them to go vote for the other guy, because I don't believe in more taxes."

July 13: According to the Washington Post columnist Harold Meyerson, owners of stocks (shareholders) in theory help corporations by providing them with money and by keeping a check on management. He writes of established corporations these days getting their money instead largely from finance investments, investments using retained earnings or borrowed money. And shareholders today hold a stock on average only for six months, down from an average of 7 years in the 1950s – high frequency trading. These short-term shareholders have little control over management.

July 17: The presidential candidates, Obama and Romney, are trading accusations about the loss of jobs through outsourcing to foreign countries. The big problem concerning jobs, according to Washington Post columnist Richard Cohen, is not outsourcing but technological unemployment. "Products that can be produced more cheaply abroad will be offshored... Products that can be produced by robots will be produced by robots."