Candidate for 2009's Worst Economics Article
Monday June 29, 2009
I have read The sardine economy five times and I still cannot tell if it is sheer economic idiocy or an absolutely brilliant piece of satire. I am afraid it is probably the former, which saddens me as it is read by a fellow Canadian. (h/t: Worthwhile Canadian Initiative)
We are given a disclaimer that the author is not an economist:
And what does he base this assertion on? The fact that the Dow Jones did not reach 1929 levels until 1954. But Teitel himself argues that stocks and financial markets do not represent the 'productive economy'. Which makes me wonder if this truly is a brilliant piece of a satire.
He rails against financial instruments and states:
Maybe I do not understand the logic because unlike Teitel I am not lawyer. I am curious to know if he considers his profession to be 'productive labour'.
We are given a disclaimer that the author is not an economist:
I am not an economist. Even as an undergraduate, I didn't take one class in economics or political science. Instead, I took courses that had more relevance to real life and were of more practical use: The Idealism of Plato, Medieval Proofs of the Existence of God and The Dialectics of Hegel.But apparently the author is no historian either, as he gives us this gem:
The Great Depression came to an end, not because of strategies formulated by economists, but by the outbreak of the second world war (when the generals started placing orders for obsolete weaponry of the type that had been used in the first world war.)The Great Depression was really two downturns - a severe depression between 1929-33 and a deep but short downturn in 1937-38. The U.S. economy was growing at a 9% a year clip for the 3 years before they joined the war. Furthermore, most of the U.S. growth came from internal growth, rather than being export driven (so it was not because the U.S. was selling arms to other countries). The timing simply does not work, and had the author bothered to do any research, he would know how fallacious this claim is.
And what does he base this assertion on? The fact that the Dow Jones did not reach 1929 levels until 1954. But Teitel himself argues that stocks and financial markets do not represent the 'productive economy'. Which makes me wonder if this truly is a brilliant piece of a satire.
He rails against financial instruments and states:
When a large part of the gross domestic product of a country consists not of doing something useful but producing financial transactions, that country's economy becomes a house of cards waiting to collapse.Which is a fair enough opinion. But then he goes on to add:
In Canada, where I live, the federal and one provincial government committed to General Motors the obscene amount of C$10.5bn, or 40% of all the corporate taxes it is estimated the federal government will collect in 2009.What on earth does this have to do with exotic financial instruments? If you believe in "a real economy based on productive labour" then can you not make an argument that the government should help out failing industries based on 'productive labour'? I was against the GM bailout (I happen to live in the province Teitel is referring to) - I just don't understand the author's logic here.
Maybe I do not understand the logic because unlike Teitel I am not lawyer. I am curious to know if he considers his profession to be 'productive labour'.
Comments
MIKE: My econ prof said, many years ago, that the Great Depression really begin before 1929 mkt crash. The farmers knew that when farming collapsed. My grandfather went broke in 1927 as a farmer.
With respect, Mike, I disagree with your assessment of the article. Though some ‘facts’ are questionable, the essence is true. At the end of the day, an economy is about value, not money. A quart of milk now feeds people the same way and to the same extent it did in 1929, or even 0009. The moral: money is meaningless in that context, so an economy based too much on exchanging money is as well.
Now a tip: focus on the message, not how it’s written. When you focus on small parts (such as that Mr. Teitel is not an economist or that some of his dates are debatable) you only miss the point and deflect us from the real story.
The sardine analogy is not complete and that is why it is debatable. Our present crisis was not generated due to a speculation in consumer goods but due to land values. Openning a tin of land values will never produce bad results simply the value depends on the producticvity of that land, but when the land is speculated in and not used then due to competition for the remaining available land does the price rise. The land speculators and monopolists continue to demand and expect high prices and as a result they are holding our economy to ransom. When they can accept a loss and sell, and only then, will our economy begin to recover.