Archive for the ‘Economics’ Category

Against irrational exuberance

You can’t spend exuberance. (Gerard Jackson)

The best refutation thus far.

Economic bubbles don’t happen out of nothing. While bad judgement is part of the entrepreneurial process (or anything involving decisions), prolongued and systematic mis-judgement finds a better explanation in government meddling.

You can take people out of government’s reach

But you can’t take government out of the people.

Second Life. A market failure or not?

Second Life currently has 20 to 30 banks that operate essentially the same way Ginko did. That fact, plus the large losses associated with Ginko, has led to a growing call for even more transparency and regulation among SL residents.

This means the failure was inevitable. In the absence of a central banking system, fractionary reserve banks are inherently bankrupt. Good luck, I hope you don’t have your life savings invested.

Bring back Mercantilism

Conservation Finance posts references to a real gem of an article.

Ha-Joon Chang writes that almost all rich countries got wealthy by protecting infant industries and limiting foreign investment.

The article fails to deliver, falling in the same trap of “the unseen” that so many economists and laymen are victims of.

[…]had the Japanese government followed the free-trade economists back in the early 1960s, there would have been no Lexus. Toyota today would at best be a junior partner to a western car manufacturer and Japan would have remained the third-rate industrial power it was in the 1960s—on the same level as Chile, Argentina and South Africa.

Why was the Lexus necessary to exist? Yes, we may see it today and judge it as a valuable thing, but why would it have been necessarily superior? How do we know that the resources destroyed by the restrictions (the missed opportunities, the unrealized enterprises) would not have been put to a better use?

This is a variant of the post-hoc fallacy. Because economic development happened after some economic restrictions, the latter caused the first. One must actually present a causal relationship between the two. Why were these industries to benefit and not others? How do we know the government can make these choices consistently? If entrepreneurs are not willing to risk their own money, what trust can we have of the government risking the money of others?

People tend to see the great public works project, but not the things (often mundane) that were not constructed, had people been free to chose for themselves. And it is these things, as proven that people are willing to sponsor, that make up the decidedly superior economic outcomes. The economy is not about cars, it’s about people getting what they want, whatever that is.

Where are you, Bastiat?

Play Command Economy Dictator

 stalin.jpg

And maybe win a Nobel prize for Economics…

For all brainy totalitarians out there:

http://nobelprize.org/educational_games/economics/trade/index.html

Pointing out the fallacies is left as an exercise for the reader.

Media Success – A Primer (How to get laid as a social scientist)

galbrait.gif

Gabriel Mihalache over at Economic Investigations has a great New Year’s piece:

Short Guide to Media Success

Some highlights:

— Try and cultivate a healthy ignorance of everything related to the operation of free markets and finance capitalism. […] Values come from the warm and fuzzy feeling inside. Anything else is Bushie propaganda

Always be sure to imply, but quite never spell out, that “having a right” means that the State must (forcefully, if necessary) expropriate (or de facto enslave) some people to the benefit of your chosen disadvantaged group du jour. Remember, the State is a fine mean to show your compassion, with other people’s money.

— Remember… patriots want to protect their country. So they’re protectionists! It makes sense. Anyone who says otherwise wants to have foreign corporations rape the pristine, virginal, natural landscape and resources of the land. Pie them. That’s a fine argument. It shows intellectual depth.

If you follow these easy steps, you’ll soon become a sweetheart of the media, you’ll get book deals, documentary deals, and middle-class, white, entitled, pol-sci majors from Europe, with a vague moral outrage and a head full of Galbraith, will have sex with you on your conference tour.

Read the rest HERE

Update: I was looking for a picture of J. K. Galbraith on wikipedia and this is what was listed in the article:

180px-zuchinni_1107.JPG

Hats off to the wikipedian with a sense of humor 😀

(preserved for posterity: wikipedia-galbraith1.PNG )

Economic Sophistry

This little argument I came up with on while arguing on a web forum. It’s amazing how much insight a basic economic understanding can give you:

Why gay men should not marry, but lesbians should

For gay men (by definition) the value of women is less than that of men. If men seek women, this gives women power. The greater the number of suitors, the more powerful women become. Conversely, the power women have by virtue of being women is diminished. Womenfolk are naturally advantaged by a greater number of men going after them (simple supply and demand). Therefore, gayness is against feminism.

Since feminism is a naturally established doctrine of our current (“liberal”) social order, it means gayness is against society.

On the other hand, lesbianism is in favor of society. Lesbianism reduces the number of women who would accept a man, therefore, heterosexual women get to have a greater power over men by virtue of the greater scarcity of non-lesbian women.

Also, since according to feminism, the woman is the superior life form, it can only be moral and just that they consort with each other.

There you have it, the (fe)male chauvinist lesson in Economics 😉

Capitalism is the Best Economic System

No doubt about that, but Captain Capitalism provides a very strong empirical evidence to back this up.

The greater the time frame, the greater the correlation.

Read more about it HERE

So if our only purpose was to have a better economy, Capitalism is the only way to go. In the long run, the economic system which renders the greatest growti will tend to dominate.

Socialists like to believe that free-market economic growth will tend to crystalize a power structure and increase inequality. But as the size of the economy has no clearly defined boundary (it can go on forever), inequality can only go as far as 100%. With 100% meaning that there is only one owner for all capital, 0% meaning that there is a perfectly uniform distribution of wealth (more on this HERE).

Inequality won’t increase indeffinately. At best, it can vary, but it will settle at some value (which won’t be in the vicinity of 0, neither that of 100%). Quite simply, the wealthiest people around are those in the business of mass consumption. You can’t be a very large business unless you cater for the masses. So it’s absurd to say the masses will be “skinned” and left with a decreasing share of wealth, when these people are precisely the ones marketers must target to enter and remain in business. A business must please its customers to be viable.

Most people understand that employees will compete for jobs and customers will compete to get the products they want. But the other side of the equation is frequently ignored: that businesses compete for customers and employees. They understand the idea of a price, but can’t associate this concept with wages. They have an understanting of supply and demand, but frequently fail to apply this knowledge to labour relations and consummer protection. I blame the public school system and the media for most of this, but I also associate responsibility of action even to those ignorant of their effects. That is, not knowing is not an excuse.

Something to take home.