Monday Message Board

Back again with another Monday Message Board.

Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please. If you would like to receive my (hopefully) regular email news, please sign up using the following link.


http://eepurl.com/dAv6sX You can also follow me on Twitter @JohnQuiggin, at my Facebook public page   and at my Economics in Two Lessons page

19 thoughts on “Monday Message Board

  1. How is Bezzle, Frezzle & Embezzle going in the current climate JQ et all? 

    JQ said “But all the Madoffs put together pale into insignificance when compared to what Goldman Sachs, Royal Bank of Scotland and so forth did – all of whom have been rewarded and promoted for their role in the disaster.” (^ref2.)
    *

    [ Note: Fraud… “loses 5% of its annual revenue to fraud. Applied to the estimated 2009 Gross World Product, this figure translates to a potential global fraud loss of more than $2.9 trillion” ! (^ref-Fraud) ]
    *

    Fraud & bezzle seem low key considering the pandemic / neolib / Keynsian / snapback of 2020-2022.

    My questions & calls… 
    > What are current level of bezzle, effects & consequences.
    > Construction & Infrastrure due to last 2 week shutdown supposedly $500m. I call bezzle. 
    > House prices – fully bezzled. 
    Yes, no, nuance please. 
    *

    Prompted by;
    “Why the Bezzle Matters to the Economy…

    “The bezzle, a word coined in the 1950s by a Canadian-American economist, is the temporary gap between the perceived value of a portfolio of assets and its long-term economic value. Economies at times systematically create bezzle, unleashing substantial economic consequences that economists have rarely understood or discussed.

    “Unfortunately, the bezzle is temporary, Galbraith goes on to observe, and at some point, investors realize that they have been conned and thus are less wealthy than they had assumed. When this happens, perceived wealth decreases until it once again approximates real wealth. The effect of the bezzle, then, is to push total recorded wealth up temporarily before knocking it down to or below its original level. The bezzle collectively feels great at first and can set off higher-than-usual spending until reality sets in, after which it feels terrible and can cause spending to crash.

    BEZZLE WITHOUT THE EMBEZZLEMENT

    “By itself, this was quite a useful concept, but in the 1990s, the vice chair of Berkshire Hathaway, Charles Munger, developed it into a far more important and subtle concept. The bezzle doesn’t need embezzlement to work, he pointed out. Anytime the reported market value of an asset or portfolio temporarily exceeds its real economic value (by which he meant the value of future returns on that asset), the economy goes through the same increase in psychic wealth followed by a decrease. As he explained in a 2000 speech,

    “Galbraith coined the “bezzle” word because he saw that undisclosed embezzlement, per dollar, had a very powerful stimulating effect on spending. After all, the embezzler spends more because he has more income, and his employer spends as before because he doesn’t know any of his assets are gone. But Galbraith did not push his insight on. He was content to stop with being a stimulating gadfly. So I will now try to push Galbraith’s “bezzle” concept on to the next logical level.

    “Munger went on to illustrate how rising asset prices, when they rise faster than rises in the underlying long-term economic value, can contribute to what he now renamed the febezzle—a clumsy word that has never stuck. Munger’s insight was that rising stock or real estate prices can generate income and wealth effects whether or not these rising prices reflect real increases in the earning capacity of these assets, that is to say in their real fundamental values. 

    “When the perceived value of assets outpaces their actual economic utility, the psychic wealth of the economy once again rises, and because this rise is not associated with any corresponding rise in real wealth, it is only temporary (though, as Munger noted, this temporary phase can go on for a very long time). The point is that financial markets can create temporary impressions of false wealth very similar to those of Ponzi schemes without any need for an embezzler—a notion, by the way, that economist Hyman Minsky would have quickly recognized as a restatement of the third, Ponzi, stage of his Financial Instability Hypothesis. “…
    https://carnegieendowment.org/chinafinancialmarkets/85179
    *

    JQ – “Risk premiums for equity: the puzzle and the bezzle

    ” Observation of the current crisis phase reminded me of JK Galbraith’s idea of the bezzle. The bezzle is the amount of undetected corporate fraud. As a boom continues, and everyone does well, people realise they can siphon off money and use it to make even more money. If they are threatened with detection, the original amount stolen can be returned to the till, and thye are still ahead. But, in a crisis, this can’t be done and, in any case, outside accountants are all over the books. So, embezzlers are caught and the bezzle shrinks. It stays small in the early stages of recovery when most decisions are being made by the cautious types who survived the crisis. But as the boom continues, hungrier and less-risk averse types come to the fore and the bezzle begins to grow again.”…

    [And I’m with Ernestine Gross, even though I’ve read some of JK Galbraith;

    “I’ve never come across JK Galbraith’s idea of the bezzle. (It gives me an idea as to why some applied Finance texts refer to the NPV, conditional on weighted average cost of capital, as ‘free cash flow’!)…” 

    To which JQ commented in return “… Ernestine, the model is one which typically assumes complete market spanning, so that you can buy securities that replicate the return on non-traded assets like equity in unlisted firms. That’s one of the many problems.”

    And Peter Wood commented:
    “Interesting, the bezzle reminds me of the Martingale betting strategy.”]

    https://johnquiggin.com/2008/11/25/risk-premiums-for-equity-the-puzzle-and-the-bezzle/
    *

    ^ref2.
    “The best books on Utopia
    recommended by John Quiggin

    “Q: I didn’t realise that Galbraith pretty much coined the term “conventional wisdom”.

    “JQ: Yes, it’s a great phrase. He was a social critic who did it with great panache. The word “affluent” was also a word that was in the dictionary but he brought it back into popular use. And my favourite, which hasn’t made it out of very limited circles, is the bezzle. The bezzle is the amount of money in the financial system that people have surreptitiously stopped away in hidden accounts. It grows and grows and grows until a crisis comes, at which point the accounts are inspected and everyone is caught and the bezzle shrinks to zero – it’s a big contraction of embezzlement. As an economist, Galbraith had some interesting ideas but ultimately didn’t have a lot of influence on the way the profession developed. But as a writer and a critic he was incredibly good.

    Q: “I guess the difference now is that bezzling is legal.

    JQ: What’s really striking about the most recent crisis is that, on the one hand, the illegal bezzle was huge.

    “But all the Madoffs put together pale into insignificance when compared to what Goldman Sachs, Royal Bank of Scotland and so forth did – all of whom have been rewarded and promoted for their role in the disaster.”…
    https://fivebooks.com/best-books/john-quiggin-utopia/
    *

    “The Global Bezzle – whence it came, where it went and why it matters (repost from 2011)

    “The Global Bezzle: Whence it came, where it went and what it means

    “By way of a reply to both John Quiggin and Brad DeLong, below I set out my view (which is largely based on, by which I mean largely stolen from, Dean Baker’s in “The End Of Loser Liberalism“, including one big change of position; obviously Dean isn’t responsible for my presentation) of the roots of the current crisis, with particular evidence on how the financial sector was really quite irrelevant, other than in performing its normal role of intermediating much bigger imbalances and policy errors …

    “The global bezzle”…
    https://crookedtimber.org/2013/11/21/the-global-bezzle-whence-it-came-where-it-went-and-why-it-matters-repost-from-2011/

    And reply from JQ;
    “Banks and the bezzle
    by JOHN QUIGGIN on SEPTEMBER 24, 2011

    “As a sort of response to Daniel’s post, I’d like to toss up some not fully digested thoughts about the fact that there have been very few high profile criminal prosecutions of bankers or others in the finance sector arising from the 2008 meltdown.”…
    https://crookedtimber.org/2011/09/24/banks-and-the-bezzle/
    *

    ^ref-Fraud:
    “2010 Report to the Nations – Key Findings and Highlights 

    “Key Findings and Highlights of the 2010 Report to the Nations include:

    “The Impact of Occupational Fraud
    > Survey participants estimated that the typical organization loses 5% of its annual revenue to fraud. Applied to the estimated 2009 Gross World Product, this figure translates to a potential global fraud loss of more than $2.9 trillion…. Small organizations are disproportionately victimized by occupational fraud….

    “Fraud Detection
    > The frauds lasted a median of 18 months before being detected.

    > Occupational frauds are much more likely to be detected by tip than by any other means. This finding has been consistent since 2002 when we began tracking data on fraud detection methods.

    > Anti-fraud controls appear to help reduce the cost and duration of occupational fraud schemes. We looked at the effect of 15 common controls on the median loss and duration of the frauds. Victim organizations that had these controls in place had significantly lower losses and time-to-detection than those organizations without the controls.

    “Perpetrators of Fraud
    > High-level perpetrators cause the greatest damage to their organizations. Frauds committed by owners/executives were more than three times as costly as frauds committed by managers, and more than nine times as costly as employee frauds. Executive-level frauds also took much longer to detect.

    > More than 80% of the frauds in our study were committed by individuals in one of six departments: accounting, operations, sales, executive/upper management, customer service or purchasing.

    > More than 85% of fraudsters in our study had never been previously charged or convicted for a fraud-related offense. This finding is consistent with our prior studies.

    > Fraud perpetrators often display warning signs that they are engaging in illicit activity. The most common behavioral red flags displayed by the perpetrators in our study were living beyond their means (43% of cases) and experiencing financial difficulties (36% of cases).”
    https://tbeardsworth.medium.com/lying-for-money-dan-davies-ec0327f63158
    *

    Via;
    ” @dsquareddigest
    clears up some of the confusion”

    twitter.com/JohnQuiggin
    “So yes, “Lying For Money”, my book about financial fraud and how it explains the world economy, is published in the USA today. ” twitter.com/dsquareddigest/status/1369316036546281477
    *

    “Short review of;
    ” Lying For Money: How Legendary Frauds Reveal The Workings of Our World
    Dan Davies, 2018
    By  Tom Beardsworth
    https://tbeardsworth.medium.com/lying-for-money-dan-davies-ec0327f63158
    *

    (^JQ-bezzle def)
    JQ’s “Review of Akerlof and Shiller
    ….
    “The ‘bezzle’ is the amount of undiscovered embezzlement or fraud in the system at any given time.”
    https://johnquiggin.com/2009/06/23/review-of-akerlof-and-shiller/

  2. And crap data.

    Remember Ray Panko’s paper on 22% spreadsheet errors? I do. Probably the first paper I ever really read.

    I was dealing with cross-matching and cleaning data for all yellow & white pages Australia wide. On paper! Groan … 3 days staring at shoe shops vs ad spend vs location vs socioeconomic indicators vs population. Just show shops! Telecom bought the yellow & white page from me for $15k in 1989 in cd-rom! The Desktiop Marketing System. A first. Telecom then placed (c) copyright on every page.
    They argued for years:
    https://en.wikipedia.org/wiki/Telstra_Corporation_Ltd_v_Desktop_Marketing_Systems_Pty_Ltd

    And now we have all the same problems yet oh so smart, with Machine Learning ML, & Artificial intelligence.

    And still crap data.
    *

    Cory Doctorow on;

    “Machine learning’s crumbling foundations 

    “It’s work performed by anonymous, low-waged adjuncts to the surgeon, who is the star of the show and who gets credit for the success of the operation.

    “The title of a Google Research team (Nithya Sambasivan et al) paper published in ACM CHI beautifully summarizes how this is playing out in ML: “Everyone wants to do the model work, not the data work: Data Cascades in High-Stakes AI,”

    Click to access 0d556e45afc54afeb2eb6b51a9bc1827b9961ff4.pdf

    “The paper analyzes ML failures from a cross-section of high-stakes projects (health diagnostics, anti-poaching, etc) in East Africa, West Africa and India. They trace the failures of these projects to data-quality, and drill into the factors that caused the data problems.

    “The failures stem from a variety of causes. First, data-gathering and cleaning are low-waged, invisible, and thankless work. Front-line workers who produce the data – like medical professionals who have to do extra data-entry – are not compensated for extra work.”….
    https://pluralistic.net/2021/08/19/failure-cascades/#dirty-data
    *

    And as asked before – What raw data was discarded from the datasets used to generate QALY’s, VSL, Daly etc. I’ve asked JQ & Tyler Cowan. No answer yet.

    Anyone?

  3. In the ABC News

    “COVID-19 vaccine rollout for people living with disability ‘seriously deficient’, royal commission report finds.”

    “Australian states and territories should not ease COVID restrictions until all people with disability have been given the opportunity to be fully vaccinated, according to the disability royal commission.”

    Key points:

    – The report said it would be “unconscionable” if people with disability had not been given the opportunity to be fully vaccinated before the country opens up.
    – Experts say there will be a “significant number” of deaths if the country opens up too quickly.
    – In the UK, data showed 60 per cent of people who died of coronavirus had a disability”

    End of quotes.

    Neither I nor any one in my immediate family has a diagnosed serious or permanent disability. There are few “conditions” though. Hardly anybody old is in absolutely perfect condition, after all.

    Having said the above I am getting sick of the COVID criminals in the LNP who clearly want “disposable” people to face death or long COVID so that their (the LNP’s) corporate and capitalist mates can make more money. They are all morally sick and despicable people; all of those who are pursuing these extreme Social Darwinism policies. It’s almost eugenics by default. They are crypto neo-fascists. There’s no other term for them.

  4. Lesson 2 & Consequences.

    A bag. That’s it. A fancy disposable plastic bag.

    An example from big pharma and little suppliers who “have little incentive to ramp up their manufacturing efforts because there’s no telling how long the uptick in demand will last.”, also showing vaccine moral failures, market failure & government failure.
    *

    “The World Is at War With Covid. Covid Is Winning.

    Then as the vaccination campaign wore on, supplies began drying up altogether. Only a few companies make the bags, and they have little incentive to ramp up their manufacturing efforts because there’s no telling how long the uptick in demand will last.

    “It’s become a huge problem,” Prashant Yadav, a senior fellow at the Center for Global Development, told me in June. “And it’s something that only an actual government can resolve.”

  5. Hi James,

    if you’re around, I sent you an email last week – it may have gone into your spam file.

    Have a good day!
    -N

  6. There was a time when we in Australia, being in a country a relatively long way from global hotspots, had some degree of security. Apart from koalas and kangaroos there wasn’t much here to target and nuke warheads were aimed at major centres in the N Hemisphere.

    With the evolution of the Quad, the pointing of fingers, enemies of our enemies, I guess that security has evaporated. Perhaps it never existed, except as a concept.

  7. What is the plan with those nuclear powered submarines anyway? They only make sense (according to the sick internal logic of world destroying military deterance) when they are ecquiped with nuclear missles. Are there any official plans for Australia to get those aswell?

    By the way, just how many billions does one of those nuclear submarines cost now? My previous naiv estimates were that one of those things would cost significantly less than a billion…

  8. hix, we get the Pontius Pilot defence. Like dolphins, we will be blowing bubbles for the killer blow, while the UKUS part of AUKUS lets fly nuclear armageddon.

    And Akarog, you posit re security “Perhaps it never existed, except as a concept.”

    I believe the suciding soles below found out the answer to your perhaps – security is just a concept.

    How may will die by their own hand after experiencing AUKUS up close and personally? 
    *

         “Veteran suicide crisis significantly worse than previously reported, new data reveals

    …” The latest figures from the Australian Institute of Health and Welfare (AIHW) reveal 1,062 ex-servicemen and women, and a further 211 serving personnel, took their own lives between 2001 and 2019.”…
    https://abc.net.au/news/2021-09-29/defence-veteran-suicide-figures-three-times-worse-than-reported/100497818
    *

    It is truly vile that even suicide statistics are not properly known for our seveing personel. Think Dutton will tell us?

    And as with crap data, fraud & bezzle above, we do not get the figures or true data to decide properly via lived experience. And those down the pecking order, muzzled, – gagged actually –  pay the psychic price.

    Gag is appropriate for our Health departments; “to choke, strangle” (someone), … The sense of “stop a person’s mouth by thrusting something into it” is first attested c. 1500.  [And then we want] “to retch” is from 1707. Transitive meaning “cause to heave with nausea” is from 1945.”
    https://www.etymonline.com/word/gag
    *

    The Gagging of (public servants) NSW health workers. 

    This line sounds like it is from 1984, Brave New World, and any authoritarian regime today 

    ” required to “act in a way which protects and promotes the interests of NSW and the particular agency where they work”, and they must “avoid conduct that could bring NSW health into disrepute”.

    Above para from;
    “NSW frontline medical staff gagged as health system braces for Covid peak

    “The NSW Health code of conduct says all staff – employees, contractors and even students working in the public hospital system – are only permitted to provide official comment on matters related to NSW Health if authorised to do so.

    “A spokesperson for NSW Health defended the government’s approach to information and the restrictions on individuals speaking out.”…
    https://www.theguardian.com/australia-news/2021/sep/26/nsw-frontline-medical-staff-gagged-as-health-system-braces-for-covid-peak
    *
    Makes me want to gag
    *

    If you were silly enough to obviously risk promotion career job and potentially jail, you have to run your human right to free speech past this lot:

    DFAT ~ Expect nothing from chief gaggers re dissenting voices of AUKUS or bullying. They didn’t even know how many suicides of veterans.

    “Biography of Secretary, Kathryn Campbell AO CSC

    …” Ms Campbell was awarded the Conspicuous Service Cross in 2010 for her service as Commanding Officer of the Sydney University Regiment of the Army Reserves and was appointed as an Officer of the Order of Australia in 2019 for her services to public administration and the Australian Army Reserve.

    “Ms Campbell is a Fellow of Certified Practising Accountants (CPA) Australia and a Graduate Member of the Australian Institute of Company Directors. She holds a Bachelor of Applied Science (Applied Mathematics), a Master of Business Administration and a Master of Information Science. She has also completed the Royal Australian Air Force Command and Staff College course and the Advanced Management Program at the Harvard Business School.”

    Biography of Mr Christopher Langman
    “Mr Langman was appointed Deputy Secretary in March 2018. Prior to that, he was Australia’s Ambassador to Iraq. Mr Langman earlier served as Ambassador to the OECD in Paris, as Deputy Head of Mission to the United Nations in Geneva, and in Washington and Buenos Aires.

    Biography of Mr Tony Sheehan
    “DFAT as Deputy Secretary International Security, Humanitarian and Consular Group

    …” most recently Commonwealth Counter-Terrorism Coordinator from September 2016. In that position, he was responsible for coordinating Australia’s Counter-Terrorism arrangements for the Prime Minister and the Minister for Home Affairs and working in close partnership with Commonwealth and State and Territory agencies.

    “Prior to that he served as a Deputy Director-General in Australian Security Intelligence Organisation (ASIO), which followed several years as Deputy Secretary, and then Chief Operating Officer in the Attorney-General’s Department. Mr Sheehan previously served as First Assistant Secretary Homeland and Border Security in the Department of the Prime Minister and Cabinet.

    “Before this, he spent 19 years at DFAT. He had overseas postings to Taipei, Beijing and Jakarta and then held a number of Senior Executive Service (SES) positions in Canberra with responsibilities for counter terrorism, people smuggling and other transnational issues.”

    “Ms Klugman is the Deputy Secretary of the Department’s Global Cooperation, Development and Partnerships Group which includes:

    “the Human Governance and Development Division,

    …” from late 2011 to 2013, in charge of the International Division of Australia’s Department of the Prime Minister and Cabinet, supporting the Prime Minister and the Departmental Executive with policy advice across the full range of international policy issues. 

    …” she was also Australia’s Special Representative for Afghanistan and Pakistan 

    …” previously the High Commissioner to Sri Lanka

    …” as well as Director of the East Timor Section.

    “Ms Klugman had also previously worked in the Department of the Prime Minister and Cabinet, serving as Senior Adviser (Asia) in International Division in 2003-04 and as part of the secretariat supporting the 2004 Flood Inquiry into Australian Intelligence Agencies.

    “Harinder brings over 30 years’ experience in government across several APS agencies. Between 2008 and 2013, she held the post of First Assistant Secretary in the Department of Climate Change. Before that, she was an Assistant Director-General in the Office of National Assessments (2004-2008). She also held Senior Adviser positions on Defence and on Fiscal Policy in the Department of the Prime Minister and Cabinet between 1999 and 2004.
    https://www.dfat.gov.au/about-us/our-people/executive/secretary-and-deputy-secretaries
    *

    “Australia’s 2017 Foreign Policy White Paper offers more wishful thinking than concrete ideas

    “When it comes to diplomacy, the government has to “live within its means” (bah), but defence is be described as “strong” or “substantial” no less than nine times.

    “The closest the white paper gets to a plan is to double-down on the US relationship, and trust that the Trump administration is a blip. 
    By Susan Harris Rimmer, Griffith University
    https://theconversation.com/australias-2017-foreign-policy-white-paper-offers-more-wishful-thinking-than-concrete-ideas-87849
    *

    …” the 2017 white paper cannot be read separately from the 2016 Defence White Paper. This laid down a reinvigorated commitment to Australia’s ability to assert power in the Indo-Pacific via a significant investment in its maritime capabilities.”
    https://theconversation.com/2017-foreign-policy-white-paper-finally-acknowledges-world-power-is-shifting-87752
    *

    I predict a lot of gagging, and suicide rates of active defence personel continuing through 2100.

  9. The political plan with the timing of the announcement of Australia’s future nuclear powered subs was and is to distract the population from the fact that Australia has lost control of its COVID-19 Delta variant pandemic outbreak. Beating war drums is a marvelous way to distract people from domestic problems.

    The financial plan, from the US and UK points of view, is to follow the Trumpian policy of making allies “pay their way”, or even overpay their way, in the alliance, while extracting strategic benefits for the main powers in the alliance. It’s a kind of protection racket.

    The military plan overall is closer naval interoperability between the AUKUS nations with a focus on forward defense and containment of China to China’s side of the first island chain.

    The operational logistics plan is based on the fact that nuclear power is essential for long-term, long-range, high-performance operations. Australia will be expected to operate these subs forward in the vicinity of the first island chain and/or the Indonesian archipelago to assist in the containment of China. Australia is to be forced to have “skin in the game” in terms of both “blood and treasure”.

    The military theater strategic and tactical plan I am not quite so sure about. It will take 20 years or more [1] for Australia to get the first nuclear powered sub but we will likely accept US nuclear subs based here much sooner. Australian based subs (Perth most likely) may well defend the Strait of Malacca which is the key maritime route to and from the Middle East, Africa and even Europe via the Suez canal.

    An ultimate containment of China would involve strategic containment of China as in cutting off all its import and export routes. The Strait of Malacca will be crucial and very easily cut in this context.Such a strategic strangulation of China would almost certainly start WW3. It’s part of the suite of threats which can never be used but which must be available to be threatened to be used, in the “logic” of steps up to mutually assured destruction. In this strategic theory, you have to be capable of pushing the line of buttons one by one up to mutually assured destruction (and to cease pushing buttons at any point) before the ultimate end and to also leave your opponent in no doubt you will do these things if they threaten you with strategic defeat. This theoretically leads to a kind of “Pax Armageddica” as the inverse of mutually assured destruction.

    Nuclear powered subs without nukes can carry plenty of non-nuclear missiles and non-nuclear torpedoes. That’s plenty of offensive force to deal with surface ships. Whether nuclear powered subs can operate as quietly as diesel-electric subs going electric and fuel-cell subs is doubtful. They have cooling pumps. Pumps always make noise. So they may be more vulnerable to counter-measures. This weakness could be countered by several means (other assets). The issue is that sinking a capital ship (aircraft carrier or nuke powere sub) is itself a massive escalation. Presumably, the opponent might avoid that… unless they are pushed too far of course. [2]

    Note 1 – Capital ships, even subs, may be obsolete by 2040. Land based missiles and underwater sacrificial drones, basically long duration drone torpedoes which can loiter, along with mobile loitering drone sensors and drone decoys may wall be the 2040 shape of things for maritime warfare.

    Note 2 – We can note that the obsolescence of capital ships could lower the threshold of war. Drone wars could escalate in way that capital asset wars might not. This too is a concern.

  10. ECONNED – just a bezzle [bezzle links above #1 11:53 AM], as law won’t call “maximising surplus” EMbezzle. And who funds the funds – superannuation. 

    Ikonoclast, is this a bezzle -“Note 1 – Capital ships, even subs, may be obsolete by 2040.”

    I call private equity a bezzle.

    I referenced JQ above at #1 11:53 AM;
    “Q: “I guess the difference now is that bezzling is legal.

    “JQ: What’s really striking about the most recent crisis is that, on the one hand, the illegal bezzle was huge.

    “But all the Madoffs put together pale into insignificance when compared to what Goldman Sachs, Royal Bank of Scotland and so forth did – all of whom have been rewarded and promoted for their role in the disaster.”…
    (Five books #1 11:53 AM)

    And  MICHAEL PETTIS
    “The bezzle, a word coined in the 1950s by a Canadian-American economist, is the temporary gap between the perceived value of a portfolio of assets and its long-term economic value. Economies at times systematically create bezzle, unleashing substantial economic consequences that economists have rarely understood or discussed.”
    (Carnegie link #1 11:53 AM.)

    Discuss.
    *

    “Background: How the Law and Economics Movement Gave Business the Upper Hand

    “Law Review Article Describes Private Equity as Bargaining Failure, Indictment of Law and Economics Fetishization of Contracts

    Posted on September 21, 2021 by Yves Smith

    “The fact that private equity contracts are costly to negotiate yet very much skewed toward the fund managers, aka general partners, is hardly news to those who have been paying attention. Yet it serves as the centerpiece of an important article, High-End Bargaining Problems, by William Clayton, which we have embedded at the end of this post.”…

    “Background: How the Law and Economics Movement Gave Business the Upper Hand

    “We’ll hoist from ECONNED:
    [ Econned – bezzle only as law wont call “maximising surplus” EMbezzle]
    “The third avenue for promoting and institutionalizing the “free market” ideology was inculcating judges. It was one of the most far-reaching actions the radical right wing could take. Precedents are powerful, and the bench turns over slowly. Success here would make the “free markets” revolution difficult to reverse.

    “While conservative scholars like Richard Posner and Richard Epstein at the University of Chicago trained some of the initial right-leaning jurists, attorney Henry Manne gave the effort far greater reach. Manne established his “law and economics” courses for judges, which grew into the Law and Economics Center, which in 1980 moved from the University of Miami to Emory in Atlanta and eventually to George Mason University….
    … background cont …

    “The Misguided Idealization of Contract Negotiation and Private Equity Negotiations in Particular

    “Clayton throws down the gauntlet in his overview:

    “Traditional law and economics theory places great confidence in the ability of contracting parties to bargain for optimal contracts, and the law reflects this confidence in many important ways. In this Article, I question the wisdom of a formalistic faith in bargaining by uncovering significant flaws in the bargaining process at the high end of the market, where parties are sophisticated and have substantial resources to aid them in bargaining.

    “These bargaining problems raise a difficult question for scholars and policymakers: If theory does not reflect reality in the high end of the market, what can be expected in other areas where parties are less sophisticated and have fewer resources?”…
    https://www.nakedcapitalism.com/2021/09/law-review-article-describes-private-equity-as-bargaining-failure-indictment-of-law-and-economics-fetishization-of-contracts.html

  11. Peak Lorry Drivers. 

    “Does history repeat itself, the first time as tragedy, the second time as farce? No, that’s too grand, too considered a process. History just burps, and we taste again that raw-onion sandwich it swallowed centuries ago.” – Julian Barnes

    2021 – and we are still dealing with problems outlined in 1865 by Jevons. 136 years of falling in the same “Raw onion sandwiches”. Therefore via the ‘same same, only different’ department; as Jevons addressed:
    > limits to growth, 
    > overpopulation, overshoot, [3] 
    > energy return on energy input (EROEI),
    > taxation of energy resources,
    >renewable energy alternatives, and
    > resource peaking—a subject widely discussed today under the rubric of peak oil.”
    And now truckies shortage which is a short term crisis and will, juding by history, go to waste.

    William Stanley Jevons wrote in 1865:

    “The Coal Question;

    “An Inquiry Concerning the Progress of the Nation, and the Probable Exhaustion of Our Coal Mines 
    … is a book that economist William Stanley Jevons wrote in 1865 to explore the implications of Britain’s reliance on coal.[1][2] 

    “Given that coal was a finite, non-renewable energy resource, Jevons raised the question of sustainability. “Are we wise,” he asked rhetorically, “in allowing the commerce of this country to rise beyond the point at which we can long maintain it?” His central thesis was that the supremacy of the United Kingdom of Great Britain and Ireland over global affairs was transitory, given the finite nature of its primary energy resource.

    “In propounding this thesis, Jevons covered a range of issues central to sustainability, including 
    > limits to growth, 
    > overpopulation, overshoot, [3] 
    > energy return on energy input (EROEI),
    > taxation of energy resources,
    >renewable energy alternatives, and
    > resource peaking—a subject widely discussed today under the rubric of peak oil.”
    https://en.wikipedia.org/wiki/The_Coal_Question
    *

    From Journal of the Australian War Memorial – Petrol rationing in Australia during the Second World War

    “Petrol rationing in WW2
    “This interesting link from the Australian war memorial gives as a historic insight into petrol rationing during WW2, the public debate, conflicts between commercial and private interests, fighting between States and the general political and legal minefield in a democracy faced with fuel shortages. It is doubtful whether governments and the public are better prepared now then they were then. And Australian cities are much more oil dependent now. Extracts:
    “Journal of the Australian War Memorial

    “Petrol rationing in Australia during the Second World War

    “{7} There was another consideration, however, as the Comptroller-General acknowledged when he stated in his report that a higher price for petrol “would be unfair to the man of smaller means … [and may] be far more drastic than would be the case under petrol rationing.

    “26} The petrol position deteriorated. Not only did the government have to cope with disgruntled consumers, but also tanker deliveries became more and more disrupted and supplies lessened alarmingly

    “{27} This information [Britain intending to run Australian stocks run down] created consternation among Australian officials. The High Commissioner was asked whether the United Kingdom realised that at least half of the stocks within Australia were required as an Army reserve.

    “{28} To aggravate matters even further, there was, for some unknown reason, an uneven allocation of tankers between the various petrol companies.

    “36} The reasons for the unpopularity of gas producers were obvious. They were inconvenient, they were cumbersome, they were not particularly efficient, and their weight increased wear on tyres (which were in short supply). As well, refuelling with charcoal was a dirty process. No amount of attractive propaganda could overcome these intrinsic shortcomings

    ” {40} While the Australian Government was prepared to go along with the United Kingdom regarding petrol restrictions, entrepreneurs were not, and the government’s authority to extend the Defence (Transitional Provisions) Act, which provided the power to keep rationing in force, was challenged in the High Court in Wagner v Gall

    “{41} Chaos followed. People hoarded, and petrol supplies became so scarce that primary production was seriously hindered; businesses were at a standstill, and industries were disrupted.”
    http://www.awm.gov.au/journal/j36/petrol.asp
    https://crudeoilpeak.info/australian-graphs/petrol-rationing-in-ww2
    *

    “Does history repeat itself, the first time as tragedy, the second time as farce? No, that’s too grand, too considered a process. History just burps, and we taste again that raw-onion sandwich it swallowed centuries ago.” – Julian Barnes
    *

    Raw onion sandwich recipe from KT2’s Dad.

    Thin cut red onion. Place on well buttered wholemeal bread. Sprinkle with raw sugar & lemon or balsamic to taste. Yum.

  12. hix: – “By the way, just how many billions does one of those nuclear submarines cost now?

    AUKUS proposed Australian attack submarine technology options:
    Option A:

    The Astute class is the latest class of nuclear-powered fleet submarines (SSNs) in service with the Royal Navy.

    Costs estimated by UK National Audit Office: Major Projects Report 2015:
    Boats 1-3: £3.536 billion (current forecast cost to completion).
    Boat 4: £1.492 billion
    Boat 5: £1.420 billion
    Boat 6: £1.533 billion
    Boat 7: £1.640 billion
    https://en.wikipedia.org/wiki/Astute-class_submarine

    Option B:

    The Virginia class, also known as the SSN-774 class, is a class of nuclear-powered cruise missile fast-attack submarines, in service in the United States Navy. Designed by General Dynamics’s Electric Boat (EB) and Huntington Ingalls Industries, the Virginia-class is the United States Navy’s latest submarine model, which incorporates the latest in stealth, intelligence gathering, and weapons systems technology.

    The Virginia class was intended in part as a less expensive alternative to the Seawolf-class submarine ($1.8 billion vs $2.8 billion), whose production run was canceled after just three boats had been completed.

    https://en.wikipedia.org/wiki/Virginia-class_submarine

  13. The New Zealand experience of petrol rationing during WW2 is briefly examined in a 1965 publication titled War Economy. NZ Prime Minister Peter Frazer (1940-45) reportedly said in Jun 1942:

    The future prospective stock position of both petrol and tyres was very grave, said the Prime Minister (Mr Fraser) last night. There was a veritable famine in tyres, and petrol stocks were just sufficient to carry on the country on a very careful rationed basis. Nevertheless, whenever supplies of petrol and tyres could with due regard to national safety be released to private motorists a ration would be made available. It was, however, very difficult to make any forward estimate of the petrol and tyres position….

    http://nzetc.victoria.ac.nz/tm/scholarly/tei-WH2Econ-c15-44.html

  14. Yesterday morning the NSW Premier, NSW Deputy Premier and NSW Minister for Energy and Environment issued a media release headlined NSW set to halve emissions by 2030. It begins with:

    NSW is set to attract more than $37 billion in investment while slashing emissions by 50 per cent below 2005 levels by 2030, under updated projections and objectives released as part of the Net Zero: Stage 1 Implementation Update.

    https://www.nsw.gov.au/media-releases/nsw-set-to-halve-emissions-by-2030

    The media release included a link at the bottom, but when I clicked on it today, it directs to the NSW Government’s webpage titled NSW Electric Vehicle Strategy. Eventually, I found the link to the 32-page pdf document titled Net Zero: Stage 1 Implementation Update, published on Sep 28 by NSW DPIE. It seems the devil is in the fine print buried towards the back of this document. On page 28, the Net Zero: Stage 1 Implementation Update includes (bold text my emphasis):

    The emissions reduction projections do not assume, and the NSW Government does not intend, that all sectors of the NSW economy will abate at the same rate. The NSW Government’s projections also find that the State is on track to achieve this objective on current policy settings. In light of this, the NSW Government policy is that the NSW Government’s objective set out in this Plan, to reduce emissions by 50% below 2005 levels by 2030, is not to be considered in planning the assessment or determination of development and infrastructure applications under the Environmental Planning and Assessment Act 1979.

    https://www.environment.nsw.gov.au/research-and-publications/publications-search/net-zero-plan-stage-1-2020-30-implementation-update

    In other words, it seems to me that NSW Government planning and assessment entities are not constrained from approving more projects (on GHG emissions grounds) that are likely to contribute significant GHG emissions.

    I’d suggest until NSW planning policy and legislation aligns with the NSW Government’s stated objective/aspiration of drastically reducing GHG emissions, by banning further approvals of projects that will likely contribute significant GHG emissions, then the latest NSW Government’s announcement yesterday is meaningless.

  15. KT2 writes:
    Quote: [And I’m with Ernestine Gross, even though I’ve read some of JK Galbraith;
    “I’ve never come across JK Galbraith’s idea of the bezzle. (It gives me an idea as to why some applied Finance texts refer to the NPV, conditional on weighted average cost of capital, as ‘free cash flow’!)…”
    To which JQ commented in return “… Ernestine, the model is one which typically assumes complete market spanning, so that you can buy securities that replicate the return on non-traded assets like equity in unlisted firms. That’s one of the many problems.” End quote.

    KT2, I don’t recall the blog discussion in detail. I take up from your quotes.

    Complete spanning with financial securities. If this condition is fulfilled, then the NPV calculation is superfluous because the value of a project (including an operating enterprise) can be deduced from security prices. That is, the present value of output j at time t = 1, 2, … n, (present value of a future revenue stream ) is ‘spanned’ (can be duplicate) by the prices of securities, s = 1, …., S at time t = 0. The same applies to future inputs (operating expenses).

    This theoretical result belongs to the class of results that deal with ‘competitive private ownership economies’, whereby ‘competitive’ is defined as price taking behaviour is all markets (eg input and output markets of commodities as well as financial markets where securities such as bond, equities, bank loans, … are issued and traded).

    Weighted average cost of capital is the weighted sum of the rates of return at which the buyers of securities, issued at time t = 0 for the purpose of the project (eg buy the inputs) , are prepared to supply the ‘capital’ (value) to finance the project (eg bonds, shares, bank loans), where the weight is determined by the fraction of finance obtained by each of the securities sold. (Yes a bank loan is also a security bought by the bank and issued by the agent who obtains the loan). The rate of return is a price ratio.
    So, if the weighted cost of capital corresponds to those in a market with complete spanning, and all input and output prices are valued at ‘competitive’ then the NPV must be zero.

    If an enterprise has market power (price setting) in one or several commodity input markets – eg labour markets or produce markets such as milk but not in financial markets then a strictly positive NPV is possible, which is ‘free’ for bonus payments for example. Similarly, a strictly positive NPV is possible if the buyers of securities are short changed, or a combination of all of the above.

    Is this why you agree with me KT2?

  16. NSW resignations continue to pile up, Barilaro was responsible for a whole bunch of policy that is ultimately unsustainable. He then decided to take on the internet, which has taken its toll.

    Dinosaurs.

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