Some alternative solutions are appearing

After reading Steve Keen's insightful analysis of the causes of the current crisis, I have been waiting to see what kind of solutions he would propose. Finally he has outlined ideas such as improving support for the unemployed. I haven't read everything he has written so he may have covered this earlier, and he has hinted before that some kind of debt forgiveness maybe required. The credit crunch is certainly a tricky situation. Deleveraging is going to take a lot of money out of the economy, but how can anything else occur when private sector debt combined with household debt has reached 165% of GDP. The only way is down. Something similar to Steve Keen's proposal for letting people stay on as renters to the bank has actually occured already in the US, although not on a coordinated national scale, and it happened after a wave of foreclosures rather than as a preventative measure.

One rule for the few

Shaun Carney wrote an interesting article in The Age about executive pay excesses. He notes that in the good times the public has been passive and excepting of the ever increasing remuneration paid to corporate executives. Now that things are turning down and governments around the world are having to prop-up or rescue companies it is now a cause for outrage. There are many competing arguments to justify and explain the escalating pay, but none have proven totally satisfactory and complete.

Is the high pay the economic rent that must be paid to secure rare and extraordinary talent? Explaining it as a reward for risk or exceptional results doesn't fly, because the risk is borne less by the executives than by the shareholders and sometimes taxpayers and their personal contributions to company performance isn't proportional to their rewards.

The pay doesn't necessarily represent rewards for innovation either. English economist John Kay has pointed out in his writings that many innovators aren't the beneficiaries of the wealth their inventions and innovations have generated.

I find what Malcolm Gladwell has written about serendipity, group dynamics and collaborative environments interesting when thinking about how an individual's output can be influenced by external factors. The market is not sophisticated enough to equitably reward all beneficial production, risk taking and innovation efficiently and money is not the singular motivator that it is often mistaken for. Perhaps it is a case of a self-selected greedy elite exploiting a weakness in the corporate governance. There doesn't appear to be a satisfactory way of linking executive performance with longer term outcomes. Relying on executives to rein in their own excesses doesn't fill me with hope.

Paul Woolley's excellent talk on the global financial industry still has me wondering about the evident failure of the market to make "super-profits" impossible through competition.

Priveleged jobs

Tim Colebatch writing in The Age calls for emissions trading to be delayed to protect jobs. This is a worthy sentiment on the surface, except that it's not backed up by proof. How can the assumption that emissions trading will cause a net loss in jobs be tested? Are existing jobs more important to the economy in the long term than the creation of new jobs?

Job losses cause trauma, family upheaval and stress and I'm not diminishing that or wishing it upon anyone. If unemployment was handled better in this economy then it may allow for faster innovation and adaptation. The shifting of risk onto the individual has made people more exposed to change and more vested in the status quo.

I wonder if boom times suppress innovation. Change is uncomfortable and when money is easy you don't need to engage in disruptive change to increase productivity. We should be on a war footing in tackling the risks of global warming. When pushed, necessity is the mother on invention.

Who caused the crisis - Savers or borrowers

Trade imbalances laid the foundations and bankers built their house of cards using the cards at the bottom again at the top and keeping a few up their sleeves. It is interesting to note that America was once to Europe what Japan is now to the US. A system was proposed by Keynes to keep a check on these imbalances.

Conspicuous thrift

Interesting but flippant article about keeping down appearances in bad times. I wonder if in our shallow, consumption-based economy there isn't a little longing for some balance or even hardship to give meaning to peoples lives. There is a lot of fat in the Australian economy, although not very evenly spread. After seeing how people live in other countries the idea that Australian's are doing it tough seems a tad out of proportion - it's all relative.

Government's bluff called on water

The 155 litres per day limit seems to have failed. I wonder if the practical limits on saving water after repeated calls to reduce consumption have been meet. The people who care about reducing consumption have either modified their behavoiur or spent the money they are willing or able to spend on grey water systems etc. The ones that don't care at all are not facing any penalties yet.

Limiting showers, water saving showerheads and toilets, using greywater and tank water for the garden will only get you so far. To go beyond this would require spending serious money which would have the risk of subsidising others making no effort. The savings in money terms of reduced consumption would not be captured by the individual at present.

Carrying around buckets of water have made me think about how poorly our built environment manages water in the current conditions. The built environment in part is a response to making life easier and the fact that we live on a dry continent has had precious little impact.

One for the country

The baby bonus is responsible for a boost in the birthrate reported in the age. There are a number of interesting theories about the reversal of the decline in births. Have 30 year olds warned of declining fertility after age 36 rushed to have kids before it's too late, combined with the twenty somethings having also seen the limitations of postponing having kids to produce a boom. The demographic questions are interesting but difficult to prove. Another theory attributes it to general economic boom-time euphoria.

Would people really respond to a monetary incentive to have kids? I find it hard to imagine but could we be looking at a crime spike in 15-20 years.

That sinking feeling

At present there is little concrete sense in the public's mind that house prices are falling. Maybe 5%, 10%, 15% who knows for sure? Not that much property changes hands and each house is a unique proposition. During the heady days when anything seemed possible and people were simultaneously shocked and excited about the run up in prices people may have felt that even though they paid too much for their house next years value would make it all feel worth it. How will people feel about the mortgages they owe when we are on the way down?

Factors effecting property prices

What comes first, high property prices or access to infrastructure? How closely would distance to public transport and good schools correlate with land values? Should some of this value be captured to pay for the infrastructure?