...with laughter. This is right up there with Matt Tabibi's take-down of Thomas Friedman: I give you Samir Chopra on David Brooks.
http://samirchopra.com/2012/06/26/david-brooks-went-to-a-springsteen-concert-and-all-i-got-was-this-stupid-op-ed/#comments
Tuesday, July 3, 2012
Monday, July 2, 2012
Visiting An Alpine Managed Grazing Commons That Inspired Elinor Ostrom
Two days ago I had the privilege to visit the Alp Bach Cooperation (Bergschaften) above Grindelwald, Switzerland in the Berne canton in a valley above Interlaken and across from Mounts Eiger, Monch, and Jungfrau, which was visited by the late Lin Ostrom in 2007, hosted by those hosting my group (participants in a conference on New Frontiers of Forest Economics, held at ETH in Zurich). Ironically, this was the day after her 92 year old husband, Vincent, died, following her death by a couple of weeks (for anybody not knowing it, she was the first, and so far only, woman to receive the econ Nobel). These alpine grazing commons were first written about academically by the late anthropologist, Robert Netting, between 1972 and 1976, and were among the first writings that Lin cited on managing the commons, which she first began studying in water management in LA in the 1960s and was her premier topic. Besides being absolutely visually spectacular, this was an extremely interesting visit.
Our hosts were Hans Schlunegger, secretary of the local Taleinungskommission, the body of 8 of these cooperatives that sets their rules in meetings of them about once a decade. Each of the cooperatives meets annually to deal with their own specific issues for the year. Dr. Schlunegger is an electrical engineer, retired from working for the Jungfrau railway. Our other host was Rudolf Zumstein, who is the Chief of the Forest Service for Eastern Bernese Oberland, which includes the forests of these 8 cooperatives in this Taleinungen. This particular cooperative consists of 120 "hearths" (households), who own land near the village of Grindelwald at about 1000 meters elevation, down in the valley. As one ascends one passes through land owned in common, first forests, and then higher up are the pastures, where 130 cattle are currently being grazed for this coop. The land is open to anyone to walk through or hang glide off from (an increasing use), although apparently there are some restrictions on hunting.
Rights to graze cattle are labeled as "kurechte," cow rights, and are allocated to the hearths. Traditionally the cattle are grazed in winter in the valley and then moved to the upper pasture in late spring through the summer. We got out at 1700 meters and walked down, being shown various things as we did so. Managing the grazing commons has traditionally been the more difficult matter than managing the forest, where members of the coop also have firewood rights to several trees per year for their hearths.
The coop dates to 1404, with Hans showing us a copy of the original agreement. This came about when the locals managed to gain ownership of the alp from a monastery in Interlaken further down. These are indeed feudal land ownership and management arrangements that have persisted into modern times, although with changes over the centuries, the last revision of the Taleinungen rules being in 2002. As late as the late 19th century there would sometimes be skirmishes even involving weapons over the grazing access, but more recently things have been peacefully managed, with monitoring being fairly easy. If anything, they would like to have more cattle grazing up there than they have now. Other animals have a ratio to the cow, with 2.5 goats equaling a cow for the kurechte calculations.
The forest was once able to be fully open access, but there was major deforestation during the 19th century, since replanted. Indeed, only 42% of yield is now harvested, generally done through careful cuts made laterally. The major value of the forest is really environmental "catchment," to prevent avalanches, rockslides, flooding, and so forth, although when wood is cut for timber, it gets sold. Although this coop does not have any of it, increasingly some of the coops in the Taleinungen are getting into tourism with restaurants and skiing and so forth. It was interesting to hear how Rudy discusses planned changes for the forest with coop leaders, these being done only after there is a mutual agreement.
What makes money on the pastures is Alp Chesse. The cows are large and shaggy and yellow. When we arrived at the pature, a herd of them came ambling over with their large cowbells clanging. Various people even patted them. I cannot resist noting in this system where cows are a standard of value that "capital" is from the Latin for a herd of cattle.
Needless to say, such arrangements have not been followed around the world for many commons resources, but I now understand much better how and why the late Lin Ostrom was so inspired by this particular ground-up example that must be labeled successful, despite all kinds of peculiar details involved with them.
Our hosts were Hans Schlunegger, secretary of the local Taleinungskommission, the body of 8 of these cooperatives that sets their rules in meetings of them about once a decade. Each of the cooperatives meets annually to deal with their own specific issues for the year. Dr. Schlunegger is an electrical engineer, retired from working for the Jungfrau railway. Our other host was Rudolf Zumstein, who is the Chief of the Forest Service for Eastern Bernese Oberland, which includes the forests of these 8 cooperatives in this Taleinungen. This particular cooperative consists of 120 "hearths" (households), who own land near the village of Grindelwald at about 1000 meters elevation, down in the valley. As one ascends one passes through land owned in common, first forests, and then higher up are the pastures, where 130 cattle are currently being grazed for this coop. The land is open to anyone to walk through or hang glide off from (an increasing use), although apparently there are some restrictions on hunting.
Rights to graze cattle are labeled as "kurechte," cow rights, and are allocated to the hearths. Traditionally the cattle are grazed in winter in the valley and then moved to the upper pasture in late spring through the summer. We got out at 1700 meters and walked down, being shown various things as we did so. Managing the grazing commons has traditionally been the more difficult matter than managing the forest, where members of the coop also have firewood rights to several trees per year for their hearths.
The coop dates to 1404, with Hans showing us a copy of the original agreement. This came about when the locals managed to gain ownership of the alp from a monastery in Interlaken further down. These are indeed feudal land ownership and management arrangements that have persisted into modern times, although with changes over the centuries, the last revision of the Taleinungen rules being in 2002. As late as the late 19th century there would sometimes be skirmishes even involving weapons over the grazing access, but more recently things have been peacefully managed, with monitoring being fairly easy. If anything, they would like to have more cattle grazing up there than they have now. Other animals have a ratio to the cow, with 2.5 goats equaling a cow for the kurechte calculations.
The forest was once able to be fully open access, but there was major deforestation during the 19th century, since replanted. Indeed, only 42% of yield is now harvested, generally done through careful cuts made laterally. The major value of the forest is really environmental "catchment," to prevent avalanches, rockslides, flooding, and so forth, although when wood is cut for timber, it gets sold. Although this coop does not have any of it, increasingly some of the coops in the Taleinungen are getting into tourism with restaurants and skiing and so forth. It was interesting to hear how Rudy discusses planned changes for the forest with coop leaders, these being done only after there is a mutual agreement.
What makes money on the pastures is Alp Chesse. The cows are large and shaggy and yellow. When we arrived at the pature, a herd of them came ambling over with their large cowbells clanging. Various people even patted them. I cannot resist noting in this system where cows are a standard of value that "capital" is from the Latin for a herd of cattle.
Needless to say, such arrangements have not been followed around the world for many commons resources, but I now understand much better how and why the late Lin Ostrom was so inspired by this particular ground-up example that must be labeled successful, despite all kinds of peculiar details involved with them.
Saturday, June 30, 2012
Private Debt Mutualization
So Germany has agreed to use the EU bailout funds for direct lending to banks in Spain and potentially other distressed countries. Not only that, the loans will not be senior: the EU can lose money on these deals just like anyone else. German officials have sworn they will never, ever accept debt mutualization, but they have just done this—but for private debt only. No solidarity around debts to finance schools, pensions or health care, but a joint checkbook to cover loans for property development in the Costa del Sol. Maybe my imagination is too limited, but I can’t think of an economic rationale for mutualizing one but not the other. What does this say about the political assumptions behind the latest attempt to patch the euro?
STELLA!
It’s interesting to find out that “hydraulic Keynesianism” was once really hydraulic, in the form of a Phillips water machine. I recommend that, if you are interested in this kind of modeling and don’t want to deal with real water and its tendency to squirt through loose valves, you can get the same effect through the use of STELLA, a software package that provides simple, intuitive modeling of dynamic systems. I’ve played around with it and can say that it’s wonderful fun. You could actually build an economics course around it—has anyone tried?
UPDATE: I guess the leaky valves are not a problem if, underneath, you have an effective liquidity trap....
UPDATE: I guess the leaky valves are not a problem if, underneath, you have an effective liquidity trap....
Microeconomics, Depedestalled
There has been a debate recently over whether and why macroeconomics is less scientific than its micro cousin. I will leave macro aside for now and say, as clearly as possible, that micro is about as counter-scientific as one can get. The problem is that utility theory, the idea that agents’ well-being can be measured by how much utility they have and that they go through life maximizing this ineffable U, is contrary to logic, evidence and the well-grounded findings of social sciences that actually study human decision-making close up.
Sen nailed the logic part decades ago. Behavioral economics refutes the empirical presumptions. Psychology, including its social and evolutionary branches, offers much more credible models.
Take away this utility maximization stuff and what’s left of micro? There’s lots of excellent econometric technique, of course, and much of the aggregate theory (at the level of markets) still stands, but the agent stuff is at best a distraction and welfare economics is a zombie. Conventional micro is propped upright only by the collective interest of its practitioners in preserving the value of their arcane skill set, and by ideological conviction.
Science it ain’t.
Thursday, June 28, 2012
Who created the ideology of a 'natural' market?
The ideology of a 'natural' market within large
modern industrial 'economies' was the central project of the Neoliberal
movement.
Neoliberalism (according to
one economic historian, at least) was launched in Paris in August 1938. At a colloquium to discuss the work of Walter
Lippmann. "It was a movement against
planning as a method of concentrating and deploying expert knowledge.
neoliberalism proposed an alternative ordering of knowledge, expertise, and
political technology that it named “the market.”... Its political challenge to
the Keynesian consensus got underway … with the founding of a think tank called
the Institute of Economic Affairs in London in 1955..."
See: http://cmes.hmdc.harvard.edu/files/Mitchell%20Paper.pdf
Tuesday, June 26, 2012
Monday, June 25, 2012
The assumption that markets are 'natural'
I've just begun to browse the pages of David Graeber's 2011 book entitled 'Debt - The First 5,000 Years'. Graeber is an anthropologist who makes no bones about the historical errors made by many economists on the evolution of markets and the use and nature of money.
On pages 44-45 Graeber writes:
"People continue to argue about whether an unfettered free market really will produced the results that [Adam] Smith said it would; but no one questions whether "the market" naturally exists....we simply assume that when valuable objects do change hands, it will normally be because two individuals have both decided they would gain a material advantage by swapping them. One interesting corollary is that, as a result, economists have come to see the very question of the presence or absence of money as not especially important, since money is just a commodity, chosen to facilitate exchange, and which we use to measure the value of other commodities. Otherwise it has no special qualities.
"....Call this the final apotheosis of economics as common sense. Money is unimportant. Economies - "real economies" - are really vast barter systems. The problem is that history shows that without money, such vast barter systems do not occur....It's money that had made it possible for us to imagine ourselves in the way economists encourage us to do: as a collection of individuals and nations whose main business is swapping things. It's also clear that the mere existence of money, in itself, is not enough to allow us to see the world this way. ...
"The missing element is in fact...the role of government policy..."
Graeber goes on to explain how government foster 'the market'. Laws, police, monetary policy, pegging the value of currency to precious metals, altering the amount of coins in circulation, regulating banks etc.
On page 49 Graeber asks a key question: "...what exactly was the point of extracting the gold, stamping one's picture on it, causing it to circulate among one's subjects - and then demanding that those same subjects give it back again?"
"This does seem a bit of a puzzle. But if money and markets do not emerge spontaneously, it actually makes perfect sense. Because this is the simplest and most efficient way to bring markets into being."
Money brings markets into being. Not the other way around, as most economists would have it. If this is true then Graeber's concluding thought has some authenticity: "Perhaps the world really does owe you a living."
On pages 44-45 Graeber writes:
"People continue to argue about whether an unfettered free market really will produced the results that [Adam] Smith said it would; but no one questions whether "the market" naturally exists....we simply assume that when valuable objects do change hands, it will normally be because two individuals have both decided they would gain a material advantage by swapping them. One interesting corollary is that, as a result, economists have come to see the very question of the presence or absence of money as not especially important, since money is just a commodity, chosen to facilitate exchange, and which we use to measure the value of other commodities. Otherwise it has no special qualities.
"....Call this the final apotheosis of economics as common sense. Money is unimportant. Economies - "real economies" - are really vast barter systems. The problem is that history shows that without money, such vast barter systems do not occur....It's money that had made it possible for us to imagine ourselves in the way economists encourage us to do: as a collection of individuals and nations whose main business is swapping things. It's also clear that the mere existence of money, in itself, is not enough to allow us to see the world this way. ...
"The missing element is in fact...the role of government policy..."
Graeber goes on to explain how government foster 'the market'. Laws, police, monetary policy, pegging the value of currency to precious metals, altering the amount of coins in circulation, regulating banks etc.
On page 49 Graeber asks a key question: "...what exactly was the point of extracting the gold, stamping one's picture on it, causing it to circulate among one's subjects - and then demanding that those same subjects give it back again?"
"This does seem a bit of a puzzle. But if money and markets do not emerge spontaneously, it actually makes perfect sense. Because this is the simplest and most efficient way to bring markets into being."
Money brings markets into being. Not the other way around, as most economists would have it. If this is true then Graeber's concluding thought has some authenticity: "Perhaps the world really does owe you a living."
Well-Meaning, But Entirely Missing the Point About Stuxnet and Flame
Mischa Glenny warns that the US is entering dangerous waters by conducting cyberwarfare against Iran. What if the tables are turned, and these weapons are used against the US?
Technical superiority is not written in stone, and the United States is arguably more dependent on networked computer systems than any other country in the world. Washington must halt the spiral toward an arms race, which, in the long term, it is not guaranteed to win.The reality, however, is that the US never worries about being the victims of its own weapons. When the US mined the harbors of Nicaragua during the Contra war, did it worry about explosives in San Francisco Bay? Today, when drones are launched to assassinate men who make the mistake of getting together in a house in Afghanistan or Yemen, whether to plan violence or celebrate a wedding, are there fears of retaliatory attacks on Super Bowl parties in Atlanta or Las Vegas? Trying to explain that US military hegemony means that we don’t have to think about what it would mean for others to do to us as we do to them is like trying to explain water to a fish.
And just to be clear: if Iran launches a cyberweapon as damaging to US security as our viruses were to them, we’ll kill a few thousand of them to show who’s boss. But there’s no need to even talk about it: they won’t and we won’t. It’s the sea we all swim in.
Sunday, June 24, 2012
The Reflexive Libertarianism of Mainstream Economists, as Applied to the Analysis of Conditional Cash Transfers
I haven’t been blogging at all in the last few weeks, and I shouldn’t be now, because I am racing deadlines to complete work on a forthcoming report on child labor for the ILO (International Labor Organization). In doing this, though, I’ve repeatedly come across the sort of economists’ tics that drive me crazy—and explain why I would never be at home in a mainstream economics program.
Consider the logic of conditional cash transfer (CCT) programs, which pay money to households in return for their agreement to make sure their kids attend school or receive health checkups. These have been roaring successes in just about every country that has adopted them: they reduce poverty, increase education and raise the living standards and future prospects of children. They are not without problems, of course, and I will discuss the shadows as well as the light in my report.
But back to the logic. If you are an economist, your first question is, why the conditionality? Why compel households to change the education and health decisions they make for their kids? Why not just give them the money and let them do whatever they want with it? You know the diagram: just giving away money has an income effect, allowing the households to migrate to a higher indifference curve, but imposing conditionality forces them to adhere to a particular threshold for education or health “goods” (substitution effect), which pushes them off their welfare-maximizing tangency and on to a low indifference curve. Economists go through many years of schooling in order to think this way reflexively.
If you are still an economist, you look for two kinds of answers. One is that there must a market failure somewhere. Maybe households are ill-informed. Maybe they don’t take into account the utility of children. Maybe there are spillover benefits to education and health not captured at the household level. Of course, if you are thinking along these lines, you will want evidence and not just speculation: show me the market failures. Quantify them.
The other answer is culture. Maybe the society in question is paternalistic toward poor people because it sees them as inferior, not capable of making their own decisions. Hence conditionality is either an expression of this prejudice or a sop to those who have it. When your core outlook is libertarian, every restriction on free choice looks like this.
Now suppose you aren’t an economist, or if you are you are an outlier. You don’t think the utility maximization model is remotely descriptive of how most people make most decisions, and you don’t think it is helpful to view education as essentially a consumer good. If you are like me, you think that most behavior is normative: people follow their crowd and largely do what the others do. Of course, on the margin you might do a bit more of this or less of that, but the general pattern is not something you decide on. You send kids to school not because you’ve given the matter thought and have decided that the present value of their future, educated earnings is greater than today’s opportunity cost, but because you and your kid are immersed in a sea of expectations about how much schooling is appropriate and how it reflects on both of you. (Even home-schoolers do not act in isolation; they are nearly always part of a subculture in which this is a normative option, and the way they go about it reflects these social influences.) Thinking this way makes you a strange economist, but a rather mainstream sociologist, social psychologist or historian.
The non-reflexive-libertarian view does not require a market failure or a taste for paternalism. It sees CCTs as policy initiatives to shift cultural norms regarding education and health. (And, no, trying to shift norms is no more paternalistic than choosing to not shift them. Welcome to the inevitability of politics.) Recipients of transfers can reasonably be asked to meet education and health conditions because child-rearing is recognized as socially necessary work, and it is equitable to pay people for it provided it is done in a way that meets societal expectations.
These things are much, much easier to understand if you don’t “think like an economist”.
Thursday, June 21, 2012
Hume The Inimitable
Do you know Hume's argument for an Established Church? It is quoted in Smith's Wealth of Nations and it is too good not to share. It is Hume at his most impish.
Hume notes that diligence on the part of a worker of any sort depends on, as we would now say, his pay varying with performance. A flat wage not tied to performance leads to an “indolent” worker. An established religion where the clergy are paid a fixed salary by the state will then produce an indolent clergy. And this, for Hume, is a good reason for state establishment, since “this interested diligence of the clergy is what every wise legislator will study to prevent”!
The result of free competition among clergy whose pay depends on the extent and devotion of their congregation, by contrast, will be that:“each ghostly practitioner, in order to render himself more precious and sacred in the eyes of retainers, will inspire them with the most violent abhorrence of all other sects...no regard will be paid to truth, morals or decency in the doctrines cultivated. Every tenet will be adopted that best suits the disorderly affections of the human frame. Customers will be drawn to each conventicle
by new industry and address in practicing on the passions and credulity of the populace.”
Hume notes that diligence on the part of a worker of any sort depends on, as we would now say, his pay varying with performance. A flat wage not tied to performance leads to an “indolent” worker. An established religion where the clergy are paid a fixed salary by the state will then produce an indolent clergy. And this, for Hume, is a good reason for state establishment, since “this interested diligence of the clergy is what every wise legislator will study to prevent”!
The result of free competition among clergy whose pay depends on the extent and devotion of their congregation, by contrast, will be that:“each ghostly practitioner, in order to render himself more precious and sacred in the eyes of retainers, will inspire them with the most violent abhorrence of all other sects...no regard will be paid to truth, morals or decency in the doctrines cultivated. Every tenet will be adopted that best suits the disorderly affections of the human frame. Customers will be drawn to each conventicle
by new industry and address in practicing on the passions and credulity of the populace.”
Wednesday, June 20, 2012
Will A Thousand CEOs Save The Planet? Report From Rio
Just back from presenting paper at International Society for Ecological Economics (ISEE) conference in Rio that preceded the main UN Sustainable Development conference that has started today there, the Rio + 20 show. What is going on there is much more than the UN part, which will probably amount to a lot of fine resolutions signifying very little. Demos are going on; we saw a bunch of landless marching, an "Occupa" group in tents protesting an arrest in Uruguay, and in the local paper feminists marching topless and a fancily made up Indian blocking traffic with his bow and arrow.
But the real show is all the other stuff, not just ISEE, but 500 side conferences. I saw a claim that 60,000 people are in Rio for all this, with 1000 of those being CEOs, yes, CEOs. Indeed, in our hotel I saw all kinds of business people, all dressed up and going to conferences. The weirdest were Russian oil men from Siberia. Now that has got to lead to green capitalism! Another guy in a suit was attending a list of alphabet soup I did not recognize, although he did say he works for International Business Phones, whoever they are. Saw a sign for something called ISGIE (could not track down on google who they are), but they were all in suits, and there was a big sign welcoming the Thai delegation for that one. Indeed, for the main event, supposedly there are reps from over 130 countries.
I suspect the vast majority of these are wannabe rent seekers, out to get government subsidies for this that or the other thing. I do not know. Many I am sure have little real interest in improving the environment (see Russian oil men above). OTOH, it does occur to me that when the green movement gets real, it is when one really gets business people doing stuff about it and making money from it. Will any of those there seeking to make money out of all this actually accomplish anything worthwhile? I really do not know. I suspect the vast majority will not, but maybe some of them actually will, and I suspect that they will be the participants there not making any headlines.
As for ISEE, it is an uber green outfit also notable for taking heterodox positions regarding economic analysis, at least its founders and leaders. One of the plenary speakers was the Prime Minister of Bhutan, the place where they first started saying they want to emphasize happiness over GDP. Some of the papers and sessions were simply awful, the sort of thing that I suspect is going on at many other of the 500 side events (and maybe the main one as well), people going on about meta-analysis of how to implement the format for assessing how to discuss sustainability. I am not kidding.
But then there were papers on very specific things going on in very specific places that gave me some hope, such as the efforts to provide credits for reforestation in developing countries through the Reducing Emissions from Deforestation and Desertification (REDD) UN project. Unsurprisingly the bottom line often gets down to details. Seems to be working in Kenya, mixed bag in Senegal (depends on which trees are planted), not doing so well in Nicaragua because central government grabs 3/4 of the credits, and in West Bengal the better off peasants in upper castes are doing much better out of the program than the poorer scheduled castes and scheduled tribal groups. Messy reality out there, but worthwhile things are actually happening on the ground in some places, even if Nature journal is right that overall humanity deserves Fs on climate change, biodiversity, and income inequality since the last Rio conference 20 years ago.
But the real show is all the other stuff, not just ISEE, but 500 side conferences. I saw a claim that 60,000 people are in Rio for all this, with 1000 of those being CEOs, yes, CEOs. Indeed, in our hotel I saw all kinds of business people, all dressed up and going to conferences. The weirdest were Russian oil men from Siberia. Now that has got to lead to green capitalism! Another guy in a suit was attending a list of alphabet soup I did not recognize, although he did say he works for International Business Phones, whoever they are. Saw a sign for something called ISGIE (could not track down on google who they are), but they were all in suits, and there was a big sign welcoming the Thai delegation for that one. Indeed, for the main event, supposedly there are reps from over 130 countries.
I suspect the vast majority of these are wannabe rent seekers, out to get government subsidies for this that or the other thing. I do not know. Many I am sure have little real interest in improving the environment (see Russian oil men above). OTOH, it does occur to me that when the green movement gets real, it is when one really gets business people doing stuff about it and making money from it. Will any of those there seeking to make money out of all this actually accomplish anything worthwhile? I really do not know. I suspect the vast majority will not, but maybe some of them actually will, and I suspect that they will be the participants there not making any headlines.
As for ISEE, it is an uber green outfit also notable for taking heterodox positions regarding economic analysis, at least its founders and leaders. One of the plenary speakers was the Prime Minister of Bhutan, the place where they first started saying they want to emphasize happiness over GDP. Some of the papers and sessions were simply awful, the sort of thing that I suspect is going on at many other of the 500 side events (and maybe the main one as well), people going on about meta-analysis of how to implement the format for assessing how to discuss sustainability. I am not kidding.
But then there were papers on very specific things going on in very specific places that gave me some hope, such as the efforts to provide credits for reforestation in developing countries through the Reducing Emissions from Deforestation and Desertification (REDD) UN project. Unsurprisingly the bottom line often gets down to details. Seems to be working in Kenya, mixed bag in Senegal (depends on which trees are planted), not doing so well in Nicaragua because central government grabs 3/4 of the credits, and in West Bengal the better off peasants in upper castes are doing much better out of the program than the poorer scheduled castes and scheduled tribal groups. Messy reality out there, but worthwhile things are actually happening on the ground in some places, even if Nature journal is right that overall humanity deserves Fs on climate change, biodiversity, and income inequality since the last Rio conference 20 years ago.
Blurbs for Economic Classics That Might Have Been
Hayek, The Foetal Conceit
The book asks whether life begins at Concepcion and answers that if you are Chilean or Paraguayan, it very well may have!
Veblen, Theory of The Business Class
This curmudgeon knows his air travel like nobody's business!
Smith, The Wealth of Martians
18th Century Science Fiction at its very best!
Mankiw, Mackereleconomics
The definitive text for natural resource economics.
The book asks whether life begins at Concepcion and answers that if you are Chilean or Paraguayan, it very well may have!
Veblen, Theory of The Business Class
This curmudgeon knows his air travel like nobody's business!
Smith, The Wealth of Martians
18th Century Science Fiction at its very best!
Mankiw, Mackereleconomics
The definitive text for natural resource economics.
Tuesday, June 19, 2012
Eurozone crisis originated in North America
"This crisis was not originated in Europe … seeing as you mention North America, this crisis originated in North America and much of our financial sector was contaminated by, how can I put it, unorthodox practices, from some sectors of the financial market." José Manuel Barroso at the G20 summit in Mexico, 19th June 2012Well, how did $34 trillion dollars suddenly appear in global capital markets between 2000 and 2007?
Monday, June 18, 2012
The globalisation crisis – looking at Greece
Greece’s elections are now over with the winners vowing to
stay in the Eurozone and thus stabilizing global financial markets in the short
term. No one believes the crisis is over
in Europe, however.
Greece’s four biggest banks have recently received an 18
billion-euro injection of funds “but may need a lot more” [1].
In Greece, as it is around the globe today, private banks possess
superior status and receive preference over ordinary private companies. A moral
hazard of always being saved by governments has set in for the larger financial
entities. Governments then present the
bank bailout bill to their taxpaying citizens. The obvious question is why are they not
allowed to simply fail? Why aren’t these
private institutions being nationalized? But these questions seem never to be explored
in current mainstream media coverage.
Isn’t it clear that the problem in Greece is that of
globalization itself? Financial
institutions operating in individual nations are now a part of a much larger global
network. Therefore any process of
nationalization and any measures to limit the mobility of capital (to avoid
dangerous and unpredictable capital flight) go completely counter to the
interests of the world’s financial actors – not
just those of Europe and Greece.
We can see now that the predictable and catastrophic results
of passing on these enormous bailout costs to the general public are playing
out. Business is simply not managing in Greece. With 400 - 425 million Euros a
day disappearing from Greece’s banks (during the last 2 weeks) even healthy
business units in Greece cannot guarantee their working capital. Any goods being brought into Greece have to
be prepaid for.
Solutions are being proposed such as implementing ‘the right
tax policy’ and even further deregulation for business and the general
reduction of ‘bureaucracy’. [2] Solutions that don’t address the actual cause
of the crisis are very unlikely to work.
Greece is also left vulnerable because it is no longer a ‘production-based
economy’. 48% of Greece’s food comes
from elsewhere for instance. Who will
guarantee continued supply if Greece’s financial credentials are destroyed?
It’s been a long time of not thinking about the wrongness of
abandoning many local methods of resilience and productivity. As Thomas Paine noted in the late 18th
Century [3] the longer the social habit
of not thinking about a wrong “gives
it a superficial appearance of being right.”
Time, rather than reason, has made many of us converts to the ideology
of globalization. Formerly prosperous
middle class families in Greece go hungry tonight while they finally have more time to
ponder on the validity of ancient strategies for basic survival.
REFERENCES:
[1] Bailout of Greek
banks is good, but not enough
02/06/2012
With an 18 billion-euro bailout, Greek banks are now staying
afloat. But losses and political instability could easily sink the ship.
By Andy Dabilis for Southeast European Times in Athens --
02/06/12
[2] Lateline, ABC
TV. Monday 18th June 2012.
11:25pm
[3] Thomas Paine,
Common Sense (1776)
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