It’s time again for weekend reflections, which makes space for longer than usual comments on any topic. Civilised discussion and no coarse language please.
- Comment
- Reblog
-
Subscribe
Subscribed
Already have a WordPress.com account? Log in now.
John Quiggin 
I think the prevalence of no recourse loans in the USA also made things worse. Our financial markets are much more liberal in the areas that count. Americans seem to want their government screwing up markets.
@Jim Rose
Thank you for your views on this matter. I am familiar with the crux of your argument (Freddi Mac and Fannie Mae). I leave this argument to the US citizens, including their academics because this arrangement needs to be discussed within a broader policy framework.
Your argument is akin to that in Australia regarding pink bats. It boils down to saying that if a government pays for some goods or service then the private providers are relieved of all responsibility. I don’t buy this argument.
The crux of your argument cannot be the root cause of the global financial crisis because banks in other coutries (eg Germany, UK, France, Spain) also required government intervention even though their domestic socio-economic policies differ from those in the USA. Furthermore, the Rudd Government very quickly took measures to underwrite deposits in Australia.
So, while I appreciate your reply, we might have to agree to differ on the conclusion.
@TerjeP
“I think the prevalence of no recourse loans in the USA also made things worse.”
I agree.
My knowledge of history isn’t crash hot. I seem to remember the USA introduced its laws on default in reaction to the very harsh treatment of bankrupts that prevailed in the European countries at the time when many people emigrated to the USA – centuries ago. In this sense there was a good intention at one point in time.
Now we have a so-called ‘global economy’ (the term amuses me – as if there hadn’t been one world – represented by a globe – all the time) with integrated financial markets. Now we have a problem with different notions of debt and laws.
PS: Good to see you back on this blogsite. I wonder when you decide to stand as an independent.
The argument that Fannie Mae and Freddie Mac were responsible for risky US home lending has been thoroughly debunked. Both were barred by law from the riskier end of the market until late in the boom.
In any case, the overhang of unsellable derivatives dwarfs the housing market by several orders of magnitude, and this was (and is) the major weakness of the banks. I do not know why Australian banks escaped – it may simply be that they had (thankfully) failed to absorb the “innovative” culture of their US and European counterparts.
On no-recourse loans, these are a well-established feature of the US mortgage scene, and were presumably factored into the terms of the loans. If the banks are complaining now, it is another bit of evidence that they simply were not paying attention.
In any event, when a major society-wide loss occurs, the big question is always who shall pay (or, rather, who shall bear the loss). A great many financial arrangements have the explicit purpose of transferring potential losses, often to those least able to bear them but also least able to resist the imposition (landlords rarely starve when the harvest is bad). When the loss is really big, the issue is not economic, but political.
JR as usual perpetuates the conservative myth that Fannie Mae and Freddie Mac caused the global financial crisis with this comment;
“In 2008 they (FM and FM) held over half of all mortgages, and almost all the subprimes. Freddie and Fannie deserve a considerable share of the blame for the crisis.”
Wrong again JR – this myth is particularly tiresome.
In actual fact:
“When you look at the subprime mortgages that were issued at the height of the craze, between 2004 and 2006, Fannie and Freddie only sold approximately 24% of those loans. In 2006, 84% of subprime mortgages were issued by private lending institutions.”
I refer you to this article below. It offers some suggestions as to why conservatives find it so unpalatable to admit the truth on the causes of the GFC (and I would add also seem to specialise in denial on a range of current issues).
http://www.whereistheoutrage.net/wordpress/2010/05/03/did-fannie-mae-and-freddie-mac-caused-economic-meltdown/
Henry: All I know is that Norman Gunston made history on that infamous day when Kerr chucked Whitlam. The `little Aussie bleeder’ from Wollongong was a World famous journo that day. See his interview with the boxing legend Muhammad Ali, once known by his `slave name’ Classius Clay – itself an absorbing story, and be amazed. Ali is just stunned at the questions, he couldn’t believe someone could be so insensitive and unaware of it! How Gunston avoided getting his clock cleaned is beyond me.
To give you a detailed answer (you asked for it!), the Labor government under Whitlam marked a turning point concerning social issues, and the addressing of them within the political sphere. By today’s standards none of the issues are outside the mainstream, which isn’t to say that people agree on how to address these issues, just that they aren’t considered as weird for even raising them.
Some of the issues concerned notions of equality of the sexes and how to properly recognise that in society. Bra burning aside, what were previously considered radical propositions – double income families, no fault divorce, equal pay for men and women, maternity pay and so on – became de-radicalised through the Whitlam Labor government bringing these issues into the policy tent.
Other issues related to the environment; the quarantining of wilderness areas from future development would be one such issue.
Then there were issues concerning the indigenous populations within Australia and their legal rights (and obligations too).
The freeing up of university places to all who qualified by way of matriculation/HSC marks was another major change in societial direction, as it allowed the great unwashed – myself included – to enter higher education and to gain access to jobs once reserved for the lucky few. Whitlam disposed of the pre-1973 scholarship scheme (which paid the fees of the university education, if you could get one of the scholarships), and replaced it with free access to university education (based on academic merit only), andWhitlam created the TEAS student income scheme, for those students in need of financial support.
The Vietnam War draft resisters – my high school physics teacher in Victoria was drafted to fight in Vietnam IIRC – were released from prison as soon as Labor got into government; they were against the war, or at least wanted to bring our soldiers back from the debacle. Conservatives, I would imagine, probably spat out their wheaties when reading about that in the morning newspapers!
A conservative political party, such as the Liberal party, did not take too kindly to the above social reforms, although a large swathe of the Australian population were more comfortable with it.
The furore around the bill of supply concerns one of convention – our political system has a whole series of conventions in areas where the constitution is absent – namely, opposition parties do not block the bill of supply. Of course, the Liberal opposition under Fraser did just that, forcing the government to desperately seek other avenues for funding government services. Remember that back in the 70’s many things were nationalised, something considered heretical in today’s environment 🙂
Another problem of convention revolved around the replacement of senators who left prematurely due to ill health or other similar reasons. The convention was to replace political like with like: if a Labor person vacated, then another Labor person would be sworn in, for example; however, the Liberal party chose to depart from that convention, and would not honour it. This changed the balance of power.
A better explanation of the extent and magnitude of the changes under the Whitlam Labor government is at the National Archives of Australia. Intriguing time in Australian politics, one that set in train a much better Australia in my opinion. Remember, Australia had been under conservative rule from 1949 until 1972 when Labor came into power. That post-war period ’49 to ’72, while it was fairly stable in many respects, it also allowed the government to drift away from where the Australian people were going on social issues.
Larry Pickering’s calenders, and his great cartoon `Bustards of the Bush’ portrayed the new Labor party and the Fraser-led Liberal opposition in great fashion. Have a look at a few of these cartoons and then look at the photos of the politicians – and read their bios – I reckon you’ll see a great cartoonist at work. Bill Leak took over to great effect.
Update, Update, Update, according to the latest reports the PM is now going to serve it up to Tony Abbott for ‘trying to run away from the things he’s said’. Well here are two examples (1) ‘It seems that, notwithstanding the dramatic increases in manmade CO2 emissions over the last decade, the world’s warming has stopped.’ Which is total crap and;
(2) ‘You know, at four elections running we had a mandate to take the unfair dismissal monkey off the back of small business and we will once more seek that mandate. At four elections running, we had a mandate to introduce statutory, non-union contracts and we will seek to renew that mandate’. Which is Abbott’s true intentions. He is a total fraud.
@TerjeP
the major sub-prime states in the USA usually have anti-deficiency laws dating from the 1930s which turn morgages into options.
if the mortgagee sale comes up short, there is little or no recourse against the defaulting borrower. No bankruptcy etc. naturally, this encouarges risky borrowing.
@Jim Rose
To me JR – the rot started when they privatised Fannie Mae in late 1968. It functioned well for three decades before. The entire derivatives markets had lots of crises along the way before the big one. Thats a sub section missing from the “mythology” of one of the causative factors of the GFC. That and mindless de regulation of the financial sector followed by many countries in the pursuit of “free globalised markets”. Reckless behaviour fuelled by debt (and where debt and austerity was seen as a “cure”) in subservience to a non existent god that was supposed to rid the world of poverty.
We waited and waited and now many more are impoverished.
I was listening to the BBC this afternoon, and once again, the panel of guests came to th topic of the Afghan occupation. As is always the case, they refused or “overlooked” the policy elephant in the room. To their credit, it wasn’t easy.
They were discussing the challenges of setting a date for withdrawal. The argument went back and forth this apparently insoluble dilemma. If you set a date, you give a signal to your enemies about when to resume insurgency, and of course, the government starts having to negotiate with the enemy it can’t defeat. On the other hand, you can sell a surge better to your domestic population. Not setting a date is unpopular. Gosh, whatever can one do?
I find it impossible to believe that the BBC, and every other news channel I’ve ever heard could overlook the obvious policy option “we’re not doing any good so let’s get the hell out of here quick smart” especially when about 2/3 of the populace of the occupying powers have tho0ught of it. They are lecturing us because they claim to be smarter than the rest of us.
So the complete absence of discussion of this option — even to reject it — can only be explained in one of two ways.
1. It’s a conspiracy — a kind of D-Notice thing
2. It’s an official policy that this will never be discussed by any guest on any program.
I would love to know which of these it is, or if the people in charge of news programs and all their guests really are that think, how this has happened regardless of which country’s English news service one listens to.
Clues anyone?
PS: It proves conclusively that having a “free press” and open elections is no impediment to ensuring that states can silence discussion on stuff their boss classes want shut down.
tho0ught[thought]and all their guests really are that
think[thick]The problem Fan is that the Coalition of the Willing blundered into Afghanistan with no idea of what they were doing or what they were facing. Instead of Pres Bush 2 taking time to consider the nature of the country, the people or the history they walked right in guns blazing. – and just as Pres Bush 1 didn’t take Saddam in the Gulf War although it was possible Pres Bush 2 decided – let’s attack Iraq now and finish off that sadistic maniac Saddam.
There was a leader who needed to be told by his friends that it would be impossible to defeat the Taliban without spending big bucks. To free the women was a noble task but it has always been a dangerous task. People shoot each other more in Afghanistan than in the USA and it is still as wild as the Wild West – but with no railway and a history and culture that has brutal treatment of others as a strong tradition through the war lords – eg the stoning of people for adultery and the dangers posed to young boys by powerful men – .it deserved more thought than it got fro the USA.
Australia should have said we want no part of that. Now we are there it appears intractable – just as every power before has found the people stay dangerous and just out wait the invaders before going back to business as usual.
If we leave however it means that the refugee problem will get worse.
The problem Fran is that the Coalition of the Willing blundered into Afghanistan with no idea of what they were doing or what they were facing. Instead of Pres Bush 2 taking time to consider the nature of the country, the people or the history they walked right in guns blazing. – and just as Pres Bush 1 didn’t take Saddam in the Gulf War although it was possible Pres Bush 2 decided – let’s attack Iraq now and finish off that sadistic maniac Saddam.
There was a leader who needed to be told by his friends that it would be impossible to defeat the Taliban without spending big bucks. To free the women was a noble task but it has always been a dangerous task. People shoot each other more in Afghanistan than in the USA and it is still as wild as the Wild West – but with no railway and a history and culture that has brutal treatment of others as a strong tradition through the war lords – eg the stoning of people for adultery and the dangers posed to young boys by powerful men – .it deserved more thought than it got fro the USA.
Australia should have said we want no part of that. Now we are there it appears intractable – just as every power before has found the people stay dangerous and just out wait the invaders before going back to business as usual.
If we leave however it means that the refugee problem will get worse.
@Alice
If Freddie Mae and Fannie Mac were successful, why would a government privatise them? You must admit that government is incapable of even the most basic task of ownership, which is deciding whether to sell the asset or not.
How would full government ownership of Freddie Mae and Fannie Mac have reduced moral hazard and to big to fail? Both Freddie Mae and Fannie Mac have 5 out of 15 or so of their directors appointed by the president and a purpose built agency and special laws to regulate them in loving detail. They are creatures of government.
If Freddie Mae and Fannie Mac were not either a cause or propagating mechanism for the crisis, why does their history and ownership structure matter? You said at #5 that “JR as usual perpetuates the conservative myth that Fannie Mae and Freddie Mac caused the global financial crisis with this comment”.
What deregulation of the financial sector? The banking sector is the most heavily regulated sector of the U.S. economy.
EG – thanks for the welcome. In terms of running as an independent it has no appeal. My motivation for running this election is quite singular. I wish to promote the Liberal Democrats (LDP) and their policies for reform which I strongly believe in. Running as an independent would not achieve that aim. I don’t expect many here to be voting for the Liberal Democrats, but I do want to build brand awareness even amongst those that know that the policies of the Liberal Democrats are not for them. If people know our policies and reject them that is better than not knowing our policies. Of course I do all this knowing that there is a proportion of the population that shares our outlook. The solid growth in party members over the last few years, admittedly starting from a low base, gives me much hope for the future.
Finally, someone comes out to tell it like it is on how tough things are at the top and what Tony Abbott can do to cut the chatter and introduce real reform.
Contrary to popular belief, as this video shows, he’s not against boat people at all.
@Jill Rush
You miss the point Jill. I wasn’t arguing about the merits of the invasion. I know and accepted long ago that violence and brutality were integral to boss class rule. You can’t make an omelette without breaking
headsegss as they say. They are having way too much fun exploring the ways in which the combination of ISAF attacks and subsidised internecine violence can increase the body count.I was just curious about how they are managing to control the discussion of options in public space.
Capitalist democracy is such a curious animal.
Fran – The reason they can control the public space discussion is that few people know about Afghanistan and the problems are intractable. The dilemma is that we support the USA and it is not easy to get out now without looking defeated and abandoning our long standing ties with USA.
What would the press expose any more than Wikileaks? – which is not new and does nothing to move forward to peace. I understood the point but I am not sure you understood mine – I was saying that it was a lot more complicated than you suggest and that is why the elephant in the room is not being discussed. There is no point in discussing something that is so problematic and your solution would lead to large numbers of refugees which no-one wants in addition to even greater death and destruction in Afghanistan and the return of the Taliban to power ie everyone who has died did so for nothing.
@Ernestine Gross
When I was a surveying student in the 1950s, our lecturer received correspondence from the Flat Earth Society protesting at how we were being indoctrinated. The Society maintains a website at http://theflatearthsociety.org/cms/. Apparently, if the Christian message was to be spread to all corners of the earth, it could not be spherical because the globe had no corners.
@John S Cook
I am not sure how your post answers my questions but I appreciate the humour.
I had a look at your web-site and found the following distinctions interesting: ‘technological’, ‘economic’ and ‘political’. Given the descriptions of these three categories, I’d like to note that all three are integrated in contemporary micro-economic theoretical models. Of course the level of abstraction is such that one needs a lot of empirical information to gain some insights from these theoretical models.
Fran, I find your vexation at Afghanstan and the Western powers absolutely comprehensble, and wonder if Jill Rush’s objection actually camoflages her similar concern, , but for a specific concern as to the exit strategy subset imcluding implementation.
For example, can we be sure or not sure that there will be a blood bath on the withdrawal of our troops. Perhaps the continued presence of the western troops is what causes the current one and would there necessarily be more blood spilled if we left?
Its another Vietnam, whatever happens from here on in becomes part of the whole tragic mess.
@Jill Rush
Sorry, I don’t accept that. I can honestly say that I have never heard any commentator explain why this was not an acceptable response. If it is too “complicated” let us hear why that is so. At the moment there are persuasive grounds for thinking the occupation is doing a lot more harm than good and whatever tangible good, if any, is being achieved is not roughly commensurate with the cost of the operation of about $100-250bn per year of the occupation.
It seems to me that the “set a date for withdrawal” view is simply untenable. The cost in human lives is already huge. If the troops withdraw before the gains for which the occupation has been maintained can reliably be secured, then the conclusion is forced: the lives lost have been lost in vain. Unless one can be certain that this success will arise on the date specified for withdrawal, then the lives lost and the money spent between now and then are forfeit — good resources after bad. Of course, one can’t know that until a long time after withdrawal, and certainly not when one sets the date, and certainly not now. Indeed, as the withdrawal time approaches, if the regime cannot defeat the insurgents, it has no choice but to negotiate with them. ISAF will be gone, but the insurgents will not. The insurgents know this. The regime knows this. ISAF knows this. The populations of Afghanistan know this.
So the only two logically defencible positions are “stay until final victory (indefinitely)” or “leave right away without significant notice”. The former is really the policy of “win at any cost” and the latter is “accept that you have blundered and cut losses on all sides, but especially one’s own”. If one asks “do the resources exist to win at any cost?” or “would any cost be acceptable?” one must answer no. Any cost is not acceptable. One cannot bind future populations to pay a cost merely to ensure that past losses can be warranted. At some point, if we have not reached it already, unless victory is realised, even victory will not be enough to repay the debt. And of course, resources are not unlimited. At that point, accepting the sunk cost losses will be the lesser evil.
One can see then that the “set a date for withdrawal” position is only proposed to avoid confronting the reality that the ongoing human cost is unwarranted, by pretending there is a date when the ledger will be in positive balance. This is like the gambler at the casino who insists that given time, he will eventually get even with the house and therefore cannot leave. And of course, the gambler is right. His or her only chance of recovering his sunk or her sunk cost losses is to keep playing, even thousgh those chances are purely notional. The gambler looks at his watch and says “I’ll stay until […]”. Of course, he stays until his credit runs out.
And here you summarise the view of the reckless gambler. This time though, instead of gambling simply with money, one is gambling directly with lives on an industrial scale. The lives lost on all sides already exceed any good that can one can plausibly contemplate post withdrawal. All that is in doubt now is how much further into deficit this operation will drive humanity. The lives lost have been lost in a monumental blunder, but nobody in power wants to admit it.
@Jim Birch
Further evidence of the irrationality of economic thinking can be found here.
Unfortunately the irrationality that dominates many economists thinking is the irrationality of believing that models based on general equilibrium are useful. This would be amusing except it leads to unfortunate policy decisions.
The economy is a dynamic system – not a system that moves from one equilibrium state to another. Thinking tools and models based on the concept of equilibrium are unlikely to give much insight into how an economy works and yet these ideas dominate economic thought and discussions on economic matters.
To see another perspective take a look at a scientist’s view of economic modelling
http://betternature.wordpress.com/2010/07/28/nature-of-the-beast/
@Jim Rose
Jim re your comment
“What deregulation of the financial sector? The banking sector is the most heavily regulated sector of the U.S. economy.”
You jest.
Fran Barlow’s response is persuasive.
But don”t forget obscured factors involving the usefulness of Afghanistan as testing ground for ordinace purchased to keep arms manufacturers going back home as part of verification for future markets. Also there is Afghanistans value as an exemple of a confected collective punishment that is intended for the attention of the rest of the world.
Behind the smiling face there are some nasty factors stacked behind our globalised particular wood shed.
Further to Alice, consider who is responsible for the bank’s protection, why and the inpacts to gunine productivity that have come from this sort of system.
Clue, USA politics over the last generation and more.
@Alice
It should be easy for you to give specifics, refer to studies. they should be at your finger-tips.
@Ernestine Gross
I am not sure that I can answer your questions in the space available. I like the points that Jim Birch and Kevin Cox make. I refer to the Flat Earth Society as evidence of how strong and how persistent denial can be over extended periods of time. You may well be satisfied with the existing microeconomic models; but try applying them to issues such as those addressed in ‘Economic issues in funding and supplying public sector information’ at http://eprints.qut.edu.au/27832/.
Try to put a value on information in the context of existing microeconomic theory and you will not get far. Try to predict what someone might discover and you will start to talk about the prospects of future knowledge. How do we assess the present value of future knowledge within benefit-cost or discounted cash flow analyses. Isn’t that fundamentally illogical? And is the answer in Polanyi’s ‘logical gap’ – a leap of faith; consistent with theorising in general? And if that is the reality, and ex ante analysis is a matter of reading the tea leaves, guessing, taking a gamble, or whatever, would it be more intellectually honest to admit to things that are matters of judgement? That could be illogical in a strict sense of deductive logic without necessarily being irrational or unreasonable.
There are plenty of issues where honesty might be the best policy. What should be the discount rate applied to public sector infrastructure; based on evidence obtainable from the global financial crisis, for example? Is that a reasonable question? And if we put more money into superannuation, is that the end of a problem or the start of a more significant set of problems? Will the savings contain sufficient purchasing power for people in an indeterminate though finite period of retirement; and will the institutions survive until the time comes to draw on the savings?
The idea of investment as the ‘Imagined deemed possible’ is borrowed from GLS Shackle. I adapted that to consider investment in technical, economic and socio-political terms. I have taken these issues further in work I hope to publish soon. But in a world of ‘unreal virtual reality’, Jurassic Park was sufficiently impressive to convince some people that humans coexisted with dinosaurs. (As a septuagenarian in the workforce, I have even been called a dinosaur by younger colleagues).
@John S Cook
Well, my initial question (representative textbook) could be answered in a few lines at most.
I don’t think the question is whether or not I am satisfied with existing micro-economic models but rather that I am not convinced you and Jim Cox are looking at the existing micro-economic models. For example, you write: “Try to predict what someone might discover and you will start to talk about the prospects of future knowledge.” I fully concur and therefore I consider the current managerial attempts to treat researchers like bricklayers who are expected to predict how much ‘output’ is produced within a given time interval as uneducated in existing micro-economic models. But, tell this to a public sector accountant and he or she is likely to give you a lecture on ‘efficiency’, ‘accountability’ and a few words that can easily be confused with well defined concepts in economics.
“The idea of investment as the ‘Imagined deemed possible’ is borrowed from GLS Shackle. I adapted that to consider investment in technical, economic and socio-political terms.”
I am afraid, the idea of ‘investment in technical, economic and socio-political terms’ makes no sense in contemporary existing micro-economic models because ‘technical’ is part of an economy’ and so are socio-politically determined institutions. It seems to me you are using the word ‘economic’ to mean accounting profits; quite common these days.
JQ’s point on information seems to turn out to be the critical factor.
@Jim Rose
Specifics Jim Rose are at your fintertips as to the de-regulation of the US financial sector (why am I arguing the obvious with an obvious denier?)
Lets start with Long Term Capital Management crash in 1998 – highly leveraged and unregulated.
Then there was the SIVs (structured investment vehicles) which popped up as the cause of the ENRON collapse which enabled ENRON tp bypass regulation with a small capital asset ratio.These were the warning bells that went largely unheeded in the 1990s.
Of course after that came the shadow banking sector, the OTC derivatives and CDs and CD0s – all vehicles than enabled the financial firms to bypass regulation and have lots of activity off balance sheet. Why did the market for CDs rise from small in 2004 to over 60 trilliion dollars in a few short years if they were not part of some massively attractive unregulated gambling spree by financial firms? It was because they werent treated as insurance contracts and the firms that owned them didnt have to pay out, hence didnt have to have much by way of capital reserves to pay potential claims.
Thats why the poor taxpayers were called up to bail out the banks when their gambling spree busted.
If they walked like a bank, looked like a bank and acted like a bank they should have been regulated like a bank JR.
@Ernestine Gross
One way to change economic models to something more closely representing the real world is to change our units of measurement from the value as represented by price to value as represented by the cost to produce items of value. Economists seem to obsessed with price and take it to be a representation of value. I would suggest that value comes by doing more with less and that price is a poor measure of productivity. A better measure is output compared to inputs. When we start to think this way and when we start to change our policies to do more with less then we concentrate on investment in better ways to achieve the same output with fewer inputs.
Calibrating can be done by observing and measuring increases in productivity. It is well known that each time we double output of any goods or service we decrease the unit cost by a percentage depending on the technology. Technologies such as electronics are up to 50% improvement every-time we double output. Others such as energy generation are about 20% – which of course is a good reason to invest in building renewable capacity because they are relatively immature technologies with lots of productivity improvements that will come as we increase the output.
That is, we can build economic models built around productivity improvements that comes from investments that increase output.
This is particularly the case for investments in ways to reduce the level of ghg in the atmosphere and will lead to alternative economic approaches to addressing climate change than increasing the price of energy by putting a price on carbon.
Kevin Cox, currently we are in a state of flux when it comes to implementing the price of carbon but not because the Australian public don’t want it rather the misinformation being propagated by vested interests refusing to accept the science. But having said that I am of the opinion that in the long-run the homo reciprocans will prevail.
@Ernestine Gross
You are at least precise in how wrong you are about my point of view.
Of course ‘technical’, ‘economic’ and ‘socio-political’ are socially constructed and endogenously determined. So are the concepts of ‘land’, ‘labour’ and ‘capital’; and the language in which these things are described; and the measurements that are made; and the ‘statistics’ and the things we are prepared to describe as ‘facts’.
I understand more than most the institutional factors that underpin a regime of property rights where land is an archetype. It is intimately bound up in government largely because land taxes and tithes were important to how governments could function in agrarian economies. And, like many other things that are institutional in character, a knowledge of history is important; because things might not be broken but they may need some fix if they won’t do the new things that are being asked of them.. But try taking those principles across into the intangibles and see how far you get Try making the measurements – as distinct from assessing the data – and the issues in reconciling flows of water in the hydrological cycle. How do we reconcile lighter than air gas emissions in ways where trespass of laws is detectable. In other words, what makes laws legally enforceable? A great deal of information flows in non-market activity but has enormous economic ramifications. Attempts to apply copyright – other than in entertainment – is messy at best, futile at worst, and might not be the reason to produce more of it. And I often hear economist speak of transaction costs without knowing enough about where the costs lie. Technical, economic and socio-political factors make governance arrangements possible. And it involves specialisation; and that involves interdisciplinary communication and cooperation that is easier to talk about than do. On the positive side, I seldom find economists or lawyers who don’t see these things as important.
The advantage of separating out technical, economic and socio-political aspects of investment is in identifying a broad separation of knowledge required in designing, implementing, using and maintaining production systems. And the value of technology depends on how it is used; and that depends in turn on governance arrangements that can check abuse. But what regulates the regulators?
Einsten is attributed with the maxim – ‘Not everything that counts can be counted; and not everything that can be counted counts’. Measurement of physical quantities, formerly understood as ‘weights and measures’ was fundamental to accounting; and the counting of money follows along similar lines. Extensive institutional arrangements underpin international measurement standards; and standards more generally.
Accounting has limits; and the separation of accounting from economics is certainly part of a problem that begins as soon as the time dimension enters and assets and liabilities need revaluation. Perhaps the issue should be what sustains human beings throughout their lifetimes; especially in their times of interdependency on other people. Our forms of socio-economic organisation should do that; and be subservient to people. Markets are part of the solution; but obsession with what markets can do is part of a problem.
Do people live their lives ‘efficiently’, or in equilibrium; or do they ‘optimise’ their enjoyment of life. I doubt that these things can be considered in such a way. Which microeconomic efficiency concept are you referring to? Take Pareto efficiency as an example. Things improve if someone believes they are better off no one is made worse off. But if they have insufficient understanding of good nutrition it might lead to diminution in health and well being that is gradual and imperceptible from day to day but becomes noticeable and significant over a more extended period. We are relying increasingly on the veracity of science, and people get by on only as much information as they are able to assimilate.
Things get better if we aim towards the creative and away from the destructive.
And understanding the meaning of happiness might depend on some experience of sadness. There is plenty of historical evidence about the destructive use of technology; and the ‘pass the parcel’ games as it relates to risk, liability and who ends up paying for calamities. And science fiction about the past might affect our ability to cope with the future.
I would argue that the concepts of microeconomic efficiency are nowhere near as settled as you infer; and I don’t believe that evidence is so clear cut that is not capable of being reinterpreted. Don’t be too hasty – there is time left to learn a lot of knew things; including how much you won’t be able to learn in a lifetime. And then you can admire the world’s complexity.
@Kevin Cox
1. Real world. Economics, as a discipline of inquiry, is broader than a snapshot of ‘the real world’. Obviously, snapshot of the real world as we see it in some locations at present is not a completely satisfactory world but not total disaster either (IMHO)
2. Value. There are more than one notion of ‘value’ in Economics. Exchange market values (market prices) is only one of them.
3. “I would suggest that value comes by doing more with less and that price is a poor measure of productivity”. In micro-economics there is the notion of ‘technical productivity’ which measures the quantitative relationship between ‘input commodities’ and ‘output commodities’. An ‘improvement in technical efficiency (productivity increase) would be what you are talking about. So it is not a new idea but rather a ‘standard’ one.
But, technical efficiency or improvements for 1 company or even an industry is not sufficient to reach the conclusion that there has been an ‘improvement in efficiency in the economy’. (This is where the conceptual framework of general equilibrium theory, as distinct from solutions of specific models, comes in handy)
4. “This is particularly the case for investments in ways to reduce the level of ghg in the atmosphere and will lead to alternative economic approaches to addressing climate change than increasing the price of energy by putting a price on carbon.”
No. A price on carbon does in no way limit improvements in technical efficiency. On the contrary, it could assist in bringing it about. Moreover, the depletion of energy resources such as oil, is but the other side of the same coin of ghg emissions at a rate that is apparently too high.
My preferred terminology is ‘administered price’; it would apply to both a carbon tax and a cap and trade system. There have been several threads on JQ’s blogsite which allowed the discussion of the relative merits of these two basic approaches, taking into account our snapshots of the contemporary ‘real world’. Moreover, an administered price levied on ghg emissions at the source does not preclude other measures such as individuals being a bit less wasteful with energy, subsidies for low income earners as well as new technology developers or solar panels on individual houses or factories.
I asked my initial question not because I wanted a debate per se but because I’ve noticed that the micro-economics taught in some management courses as well as things said about economics in some other courses is not what one may call contemporary mainstream micro-economics in the academic literatue.
@Kevin Cox
Good stuff Kevin. I work with the economics of information and it has no meaning until put into the context of how it is used; and then how it is re-used; and misused and confused.
Instead of land, labour and capital, we need to seek out the knowledge and ingenuity of people, the energy they have or can harness and the materials they have at hand to see where production and productivity really begins. I think we will need to apply an operations research type of approach to issues of production – particularised and not too generalised. We will need a balance sheet approach to avoid wrecking the productive capacity of the biosphere and ensure that the next generation can function. Money in the bank won’t fix anything if it can’t facilitate exchange; and assuming banks can survive. There is reason to be hopeful but not complacent.
John S Cook, I would argue that those on the left ie homo reciprocans such as Rudd, Gillard, Turnbull, etc. have very little in common with those on the right who espouse to homo economicus ie Howard, Costello, Abbott, etc.
@John S Cook
Well you are telling a lot about various topics and some assumptions about what I said. However, you still haven’t given me a representative reference book for your ‘micro-economics’ which you started of with.
You say: “Perhaps the issue should be what sustains human beings throughout their lifetimes; especially in their times of interdependency on other people. ”
May I point out the obvious, namely that is a fundamental question in Economics and nothing new.
What is the difficulty in naming a reference book which you take as ‘economics’.
@John S Cook
“But try taking those principles across into the intangibles and see how far you get ”
I wouldn’t be silly enough to try to do that.
Ernestine Gross, it has been a long time since I read ‘Herbert A. Simon’.
@Michael of Summer Hill
By about 1988, major contributors in the area of contemporary general equilibrium theory, (math econ), eg Balasko, saw a need to point out that the models are limited to the production and trade of physical commodities and future contracts for delivery of such or contracts denominated in monetary value terms. During the period from the mid-1990s onward, I came across more and more silly applications of the word ‘markets’, ‘competition’, ‘efficiency’, and ‘economics’. I don’t know where this stuff originates from but I have noticed those people who talked like that all an accounting background. I must hasten to say that other accountants I met are not confused at all.
@Ernestine Gross
My first prescribe text in the 1970s was Paul Samuelson and it was still prescribed without too much by way of amendments into the 1980s.
I set Baumol, Blinder, Gunther, Hicks, Economics, principles and policy, Australian edition as a text for my own students in the 1980s; but it was not especially helpful in service level teaching to students who were not proceeding to intermediate and advanced levels in economics. Occasionally, I see prescribed texts in book stores and library shelves. the changes are largely in publication and presentation style.
This is completely off topic, but I immediately thought of Alice when I saw this graph. Alice, any comment?
http://online.wsj.com/article/SB10001424052748703977004575393882112674598.html?mod=WSJ_Opinion_LEADTop
@Jarrah
Jarrah – nice to see you again. Im not quite sure why this graph reminds you of me but Ill hazard a guess and suggest the top 1% have been doing very well!
Ernestine Gross, I find many of today’s so-called ‘original ideas’ are in fact not so original for if you dig deep enough you will find someone somewhere has already touched on the subject matter. And amidst all this process one finds that the original ideas and meanings have given way to fads which come and go.
You’re like a hawk pouncing on a hare, aren’t you Alice?
@John S Cook
Thank you very much for giving me a point of reference. I agree with you regarding the suitability, or rather lack thereof, of these texts for service courses. To the best of my knowledge Economics is taught to reflect the historical development of theoretical knowledge and methods with, at times, pathetic attempts to relate the material to contemporary practical problems. It is only in post-grad PhD type subjects where the teaching catches up with contemporary ‘micro-economics’. And the interpretation of this material requires maturity and experience – at least IMHO.
Perhaps any misunderstandings have now been removed.
@paul walter
Gotta have a laugh sometimes! Jarrah did ask for my comment. Dont worry Paul – Jarrah can take care of himself just fine. He will be back – Im sure – he has just ducked down a burrow somewhere right now.
It reminded me of you because of your repeated assertions about the rich and tax takes.
@Ernestine Gross
Perhaps any misunderstandings have now been removed.
I think so. The historical development of the learning is important because it reflects contemporary problems and contemporary approaches to solving them. There was virtue in the attempts by Colin Clarke and Simon Kuznets in trying to develop national accounting standards to deal with systemic unemployment. But people ought to be told that it is a sketchy appraisal of economic activity; and depends on data compilations that could be achieved. Most senior people in their disciplines are able to see shortcomings in what they know.
I like your use of the term ‘administered prices’. I have been referring to prices established by authority or by command in public and private bureaucracies.
@Jarrah
Oh that Jarrah? Well have a look at your graph. It really would have been better with a few more categories of the rich (or the non rich for that matter) on it Jarrah and for the commentary – well its not supported evidentially by the graph and the heading on the graph used the label “lower rates higher revenue” but nowhere is overall revenue displayed statistically or graphically anywhere – just a few talking points.
There is one other minor detail Jarrah. It was written by Mr Laffer (we know Mr Laffer as being a hero to conservatives who favour tax reductions). Im just not sure I agree with Mr Laffer because there doesnt seem to be any bottom to his his curve. After all tax has been given back how can we reward the rich more then? Maybe we should consider direct transfers from the poor to the rich that cut out the middleman (government)?. That has been used in the past. I think its called tenant farming or serfdom.