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Monday message board

April 24th, 2006

It’s time, once again for the Monday Message Board. As usual, civilised discussion and absolutely no coarse language, please.

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  1. Katz
    April 26th, 2006 at 22:54 | #1

    “Can we assume then the Iraqi govt has indicated they’d like a US security presence around for at least a decade or so?”

    Probably not, for the very good reason that there is no Iraqi government. Jawad al-Maliki has less than 28 days to form one. Then Iraq will have the distinction of being led by a phoney government under the aegis of a non-operational constitution. But let’s pass on to more substantial matters.

    It is quite true, as Observa notes, that none of the important blocs represented in the Iraqi parliament have openly called for the withdrawal of the COW.

    There are several reasons for this:

    1. The Kurds know that their hopes for autonomy or even independence rely upon US support. If the US withdraw that support isn’t worth the paper it’s written on.

    2. The non-rejectionist Sunni fear that the Shiite militia will be turned on them as soon as the US leaves.

    3. Different Shiite parties and factions have a very complex relationship with the US. Some are grateful to the US for removing Saddam. Some dislike the US but see them as useful for combatting Sunni rejectionists. Some follow the Iranian line which pictures Iraq as an attritional lesson to the US to persuade them against invasion of ME nations.

    4. The small number of secularists fear a sectarian deluge after US withdrawal.

    The problem for the Bush clique is that Shiite sectarians will dominate Iraqi national politics for the foreseeable future. Democracy is the hallmark of success that justifies Bush’s Mesopotamian adventure. Yet the results of this democracy are inimical to any substantive measure of success in the region. Shiite sectarians know that time is on their side. Either the US will stay and fight the Sunni rejectionists, which is good for Shiite sectarians, oor the the will leave disillusioned by their failures, leaving the Shiites and Iran masters ofthe situation in the region.

    Why should any of these groups want the US to leave just yet? The Lilliputians have lashed Gulliver to the ground and are making sport of him.

    One factor at until now not considered is the possibility that US troops may take matters into their own hands and resume an updated version of the practice of fragging. Were this to happen, the US would be compelled to reconsider the terms of its occupation of Iraq.

    It’s early days, but here’s a story of an enlisted man who fragged two officers recently in Iraq:

    http://www.capitalnews9.com/content/top_stories/default.asp?ArID=174313

  2. observa
    April 27th, 2006 at 00:43 | #2

    Terje,
    You can instantly see for yourself the problem with a gold standard when you compare the record price of $850/oz in 1980 cf around the current high of $650. Clearly the real drop in value is much worse than the nominal drop here. You were probably better off with an iron ore standard, given that sort of return. You’d imagine an oil standard would be a better bet than gold in future. Fiat currency is fine so long as we rigidly agree not to resort to printing the stuff at the rates we do. That’s the hard part I guess.

  3. observa
    April 27th, 2006 at 00:47 | #3

    Katz,
    When you’ve got them by the goolies, there hearts and minds will follow eh?

  4. James Farrell
    April 27th, 2006 at 04:18 | #4

    Terje

    Thanks for looking at the link and responding. Six points in response:

    1. I referred you to Ricardo mainly to make the point that the idea is a very old one, that gold (even under a non-convertible regime) is the most appropriate measure of the value of money. A secondary point is that there’s a wide consensus that, brilliant as he was, Ricardo got the wrong end of the stick when it came to monetary policy. Among other things, you have to realise that price indices had not been invented in his time. But this is a long story. I can you give some references if you are interested in archaeology.

    2. There is no concept of intrinsic value in modern economics. Value just means price. Early economists used the term intrinsic value various ways. Locke used it to mean what the classicals later called ‘use value’ (i.e. the ‘subjective value’ you referred to, but did not think of it in quantitative terms. Cantillon meant basically the cost of production, but Smith elected to use the term natural price to refer to the same thing. The closest equivalent in modern economics is the idea of long run average cost, originating with Marshall; of course that’s a schedule rather than a single value (the classical economists didn’t think of costs as dependent on quantity, at least over the relevant range.)

    3. Whether the ‘cost of production’ can be expressed in terms of labour is neither here nor there: it doesn’t alter the nature of the concept. (Ricardo didn’t subscribe to a naïve concept of the LTV, by the way. In fact it was precisely he who worked out what was wrong with it.)

    4. The closest equivalent in modern economics is the idea of long run average cost, originating with Marshall; of course that’s a schedule rather than a single value. The classical economists didn’t think of costs as dependent on quantity, at least over the relevant range. This is why Marshall, Walras and others realised that demand had to come into the story – you need it there to determine the quantity.

    5. The idea that prices depend on both utility and technical conditions of production is still the basis of modern value theory. So I’m not sure what you mean you by insisting that value is subjective: on the one hand, nobody (except for a few Marxists or extreme ‘post-Ricardians’) thinks that subjective valuations don’t matter; on the other hand if you think costs don’t matter, that’s just wrong. Even in your own arguments you’re forever evoking demand and supply. A good’s supply price, in the relevant time frame, is its marginal cost. (As long as gold is still being mined, by the way, it too is covered by this generalisation.)

    6. Now that we’re on the topic of your and demand and supply models, I can only repeat that you yourself have gotten the wrong end of the stick on monetary policy itself. In case you missed my earlier comment on this, it’s here. The main point is that it’s very hazardous to try and explain inflation in terms of demand and supply of money.

    Could I just ask you, as a matter of interest, the extent of your formal training in economics? You are obviously passionately interested, but I get the feeling that the strength of your opinions is a little out of proportion to your conceptual knowledge. As I’ve hinted before, a bit of reading – a textbook or two, rather than fringe websites – might benefit you enormously. That probably sounds patronising, but I can’t think of another way to express it.

  5. James Farrell
    April 27th, 2006 at 04:25 | #5

    Sorry, I repeated some sentences there – copied and pasted rather than cut and pasted. And, for what it’s worth, there should be a close bracket after “(i.e. the ‘subjective value’ you referred to”.

  6. Katz
    April 27th, 2006 at 08:49 | #6

    “When you’ve got them by the goolies, there hearts and minds will follow eh?”

    And whose knackers are nailed to the floor in Iraq?

  7. April 28th, 2006 at 14:28 | #7

    James,

    I did miss your earlier post in the other thread. I will attend to it within that thread.

    Within this thread mostly you have said things I agree with. Your comments about “intrinsic value” mostly accord with what I said. If you have a particular point of disagreement that you wish to explore then please feel free to outline the specifics.

    When it comes to the subjective nature of value then of course the cost of production has a big impact on the outlook of any producer. Consistently selling goods below cost is a sure path to pain. And pain usually has an influence on a persons outlook.

    My formal qualifications in economics are nil. I did a HSC subject called economics but that was a long time ago. None of which mean I have not read any books. How about you?

    Regards,
    Terje.

  8. April 28th, 2006 at 15:38 | #8

    You can instantly see for yourself the problem with a gold standard when you compare the record price of $850/oz in 1980 cf around the current high of $650. Clearly the real drop in value is much worse than the nominal drop here. You were probably better off with an iron ore standard, given that sort of return. You’d imagine an oil standard would be a better bet than gold in future. Fiat currency is fine so long as we rigidly agree not to resort to printing the stuff at the rates we do. That’s the hard part I guess.

    Try looking at the bigger picture. The price in 1980 was a peak at the high point of US inflation. The fact that the spike fell represents nothing more than a correction in the direction of economic policy and a change of trend.

    The following graph might be enjoyable:-

    http://www.globalfinancialdata.com/index.php3?action=detailedinfo&sampledata=true&id=3991

    Gold is a leading indictator of errors in monetary policy. It is not some type of simplistic forcast for inflation. Like a compass it can tell you where you are currently headed but it can not predict how you might choose to change course tomorrow.

    Any attempt to use gold as a simplistic forcast for inflation will be wrong if the policy direction changes. However for a monetary navigator (eg a monetary authority setting a monetary course) the gold price should be used like a compass to ensure that it sails a safe path.

  9. Ernestine Gross
    April 28th, 2006 at 18:17 | #9

    And the following site may convey some of the difficulties with semi-private money even if gold is involved:

    http://www.globalfinancialdata.com/index.php3?action=showghoc&country_name=GERMANY

  10. April 28th, 2006 at 23:06 | #10

    Ernestine,

    The webpage conveys some of the complexity of the monetary history. However the article does cover a long expanse of time and if we look over the last few decades in our modern era the track record is hardly superior. At least in antiquity when systems were loosely based on gold and silver cross border trade was relatively straight forward even if the face on the gold and silver coins changed to reflect the political powers that be. Gold was gold regardless of the units into which it was carved or the figures that adorned it or the paper notes that promised it. In fact it still is.

    Is there any good reason to continue the effective prohibition on privately issued bearer based gold promisory notes? If they are an inferior form of currency then surely they should be of little threat to the status quo. Lets lift the prohibition and see what happens.

    Regards,
    Terje.

  11. Ernestine Gross
    April 29th, 2006 at 11:45 | #11

    Terje says:

    “The webpage conveys some of the complexity of the monetary history. However the article does cover a long expanse of time and if we look over the last few decades in our modern era the track record is hardly superior”

    Strange. The article pertains to the monetary history of a geographical region known as Germany. Keeping the geographical region constant, the track record of the monetary history during the last few decades is unambiguously ‘superior’ by any measure I can think of.

  12. April 29th, 2006 at 12:39 | #12

    Really!! Lets take inflation as a measure. If we look at German over the last 35 years it has not been so great. If we look at the 20th century as a whole it was pretty dreadful. I would think that few of the earlier eras had it so bad.

    I do think the Euro is promising. It has eliminated the floating currencies in the trade regions surrounding Germany. In many ways the Euro has brought similar trade advantages that gold and silver did in earlier eras. Although the Euro took a lot more political capital to estabish and required the sacrifice of a lot more sovereignty to maintain.

  13. Ernestine Gross
    April 29th, 2006 at 19:04 | #13

    Terje,

    Yes, really. I should think the life of the FRG covers the “past few decades” (your condition). During the life of the FRG one can say that there was no inflation problem.

    Don’t you know that the “Bundesbank” followed a monetary rule? Yes, very much in the spirit of Milton Friedman.

    As for measurements of ‘inflation’, the following article might be helpful to you:

    http://www.bundesbank.de/download/volkswirtschaft/dkp/2000/200004dkp_en.pdf. (It is in English.)

  14. April 30th, 2006 at 01:56 | #14

    FRG = Federal Republic of Germany? (I presume)

    Actually when I dig up the specific figures for West Germany over the last 35 years I am forced to admit that it did do well at keeping inflation in check. For West Germany in a couple of years around 1974 inflation hit something like 7% however other than that its been pretty low. It does seem to have done a lot better than a lot of other countries. So I will retract my remark about the last 35 years in Germany.

    The article you reference is 60 pages. Does it make a particular point pertinent to this discussion or is it just something interesting I should read in the course of time.

  15. Ernestine Gross
    April 30th, 2006 at 13:15 | #15

    The article describes methods and methodology quite well. Several measures of ‘inflation’ are compared. The article is thorough. It won’t date quickly.

    I listed it because the environmental costs of e-communication are negligible. I would not have sent it in hard-copy because my estimate of the chance of the general public reading is at most .2.

  16. James Farrell
    May 1st, 2006 at 05:38 | #16

    Terje

    Sorry if I implicitly attributed views that you don’t hold. I confess I was influenced by a conversation on another blog with a self-styled Austrian and autodidact who had a bee in his bonnet about value being subjective, as if mainstream theory didn’t take pereferences into account. Your last statement about costs and pain still reflects a bit of confusion, but it’s all pretty tangential to your gold topic, so I’ll leave it.

    In answer to your question, I teach economics at UWS. Mostly macroeconomics and the history of economics. But I’ve never run a business, and am in awe of anyone who does.

  17. August 6th, 2006 at 21:58 | #17

    While you are reading this, the Iranian reactor produces enriched bomb-grade uranium. Terrorists can deliver that bomb to your city, and it can kill you and your children. Yet the government does nothing.

    Do we demand violence? Not in any common sense. Similarly, police use force to arrest criminals in order to stop violence.

    But Iran is not a criminal? Wrong. Iran has proven malicious intent. Iran, under the current regime, conducted many terrorist bombings in the West, and sponsors deadly terrorists. Iranian leaders repeatedly called for fight against the United States and annihilation of Israel.

    Perhaps Iran needs nuclear weapons for self-defense? No. Iran already bullies the Middle East with its huge conventional army. No country threatens Iran.

    Since the eighth-century jihad and the Ottoman army at the gates of Vienna, the West has never been exposed to such threat. Iran’s several nuclear bombs can inflict more damage on America than the World War II. Never before the Islamic fundamentalists who hate the West and dream of attacking it had military might of apocalyptic dimensions. Are you crazy to doubt they will use the bomb?

    We call on the United States: Do not hesitate. Protect your people. Protect your allies. Destroy the Iranian reactor!

    To sign the petition, visit http://terrorismisrael.com/nuclear_iran.htm

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