To the flicks last night. NetFlicks, to be accurate. Watched The Gatekeepers, a timely documentary interviewing six of the former directors of Shin Bet, the domestic Israeli intelligence agency, tasked with preventing terrorist attacks and so on. And oh boy if the film doesn't knock your socks off. Not to speak for anyone else, but I definitely came to this film with a preconceived notion of what I was about to hear, namely, apologetics. Surprisingly, and with one important exception, these were mostly absent. If you have watched the movie, you can probably guess that this exception is when Avraham Shalom, head of Shin Bet in the early 80s, states that morality plays no role in the prosecution of the war on terror. Aside from this, these former spooks come across as surprisingly dovish. It's nuanced. It's compelling. It's hella odd.
That I find it hella odd probably betrays an Amerocentrism that expects former heads of national security bureaus to be, a la Clapper, disingenuously self-serving masters of doublespeak. However, it's true that Israel, as a tiny enclave in that volatile place East of the Middle, has far less leeway in their ability to make mistakes than the good ol' U. S. of A. While fair Columbia drones whole villages out of existence in Yemen and Afghanistan without any appreciable blowback (yet), Eretz-Yisrael must conform itself with surgically placed bombs in densely populated Palestinian cities, which then result in mass protests and a predictable increase in suicide attacks. Hardly surprising, given America's giant buffers aptly full of salt water on three sides to Israel's piddling wall.
So it stands to reason that these six men, all extremely intelligent, all former soldiers, some former members of the Knesset, and none of whom are constrained any longer by political correctness or bullshit, can, and do, take a far more intelligent, nuanced, and pragmatic view of the humanitarian disaster currently unfolding in their occupied territories. However, the real kick in the crotch doesn't really come until the very end of the movie. The very last line of the movie, in fact, and this line, if nothing else, is probably the entire reason this film should be seen by all Americans who want to understand the predicament of their future children and grandchildren, of a future that will undoubtedly unfold in America because it has already unfolded in Israel, with devastating consequences.
This line is spoken by Ami Ayalon, head of Shin Bet 1995 to 2000 and runner-up to the post of Prime Minister in 2007. Mr Ayalon begins this particular monologue with a reference to an idea he attributes to Carl Von Clausewitz, a 19th century military theorist, which is that "victory is the creation of a better political reality". The validity of what is "better" can be debated, of course, but as a general dialectical construct, it is a good definition as any other. And so taking this at face value, has Israel been able to achieve victory--that is, has Israel been able to achieve a better political reality? One would have to be heartily aligned with the fundamentalist far right of the Zionist movement to argue that it has. On the whole, life in Israel is now more nasty, more brutish, and shorter than it was at the signing of the Oslo accords. And so, Mr Ayalon concludes, "the tragedy of Israel's public security debate is that we don't realise we face a frustrating situation in which we win every battle but lose the war."
That is the last line of the film, and it is profound. Indeed, it's something every Israeli and every Palestinian is deeply aware of, but thanks to the decisions of their forebears, there can only be escalation; retrenchment is defeat. And in this war, defeat is not an option, for death is preferable.
This is a clear warning to the many administrations of the New World. About three-quarters of the way through The Gatekeepers, the men are asked if they favour talking problems over in lieu of violence. Even Shalom, the most hawkish, agrees that the only way to resolve the conflict, or any conflict, is by talking. And this is exactly what the US seems to not be doing. And if Israel's fate is any indication, I fear for the next generation. Is that the kind of world we want?
Monday, September 2, 2013
Wednesday, May 1, 2013
Nuggets of wisdom
Excerpt from a journal entry of 6 December 2005:
Today has been the shittiest day in recent memory. Perhaps even aspiring to be the shittiest day of the year, maybe even, the shittiest day of the decade. Well, maybe not the decade. But you get the idea. [...] I had to be at this dinner (yes, dinner... not supper) @ 7:30pm. [...] [Several coworkers] were also present. In a word, it was boring. The food was good, the conversation was not always tear-inducingly sleepful, and getting [a coworker's] feedback was actually quite nice; the problem was mostly within me. Firstly I had [a] huge headache; secondly, I was dining with people whose company I didn't necessarily enjoy; and at times, these people were talking about subjects so arcane (love that word) and acronymised (jargony) that I just zoned out sometimes. I started thinking about [...] how cool it would be to have a nice taco, or Chipotle burrito. I was thinking about comics I should write. I even thought of diagramming the word "meeting," "gathering," "party," etc., on a two-dimensional, two-variable x, y space, with coordinates for "boringness" and "formality". I mean, I thought, just because we have food here, and we aren't in some meeting room, and at times (but not too often) we veer off the topic of work, it doesn't necessarily mean this ISN'T a meeting. Right? Behold:
Conclusion: If you are in a social setting organised around some theme, and you are bored; congratulations! You're in a meeting!!!
Today has been the shittiest day in recent memory. Perhaps even aspiring to be the shittiest day of the year, maybe even, the shittiest day of the decade. Well, maybe not the decade. But you get the idea. [...] I had to be at this dinner (yes, dinner... not supper) @ 7:30pm. [...] [Several coworkers] were also present. In a word, it was boring. The food was good, the conversation was not always tear-inducingly sleepful, and getting [a coworker's] feedback was actually quite nice; the problem was mostly within me. Firstly I had [a] huge headache; secondly, I was dining with people whose company I didn't necessarily enjoy; and at times, these people were talking about subjects so arcane (love that word) and acronymised (jargony) that I just zoned out sometimes. I started thinking about [...] how cool it would be to have a nice taco, or Chipotle burrito. I was thinking about comics I should write. I even thought of diagramming the word "meeting," "gathering," "party," etc., on a two-dimensional, two-variable x, y space, with coordinates for "boringness" and "formality". I mean, I thought, just because we have food here, and we aren't in some meeting room, and at times (but not too often) we veer off the topic of work, it doesn't necessarily mean this ISN'T a meeting. Right? Behold:
Conclusion: If you are in a social setting organised around some theme, and you are bored; congratulations! You're in a meeting!!!
Saturday, July 21, 2012
Grift and its detractors
Last year I read Matt Taibbi's book Griftopia: Bubble Machines, Vampire Squids, and the Long Con that is Breaking America, and it had
my head exploding, both because of the content and the awesome prose
that the gifted Taibbi
uses so well. In it, he does not just document what went wrong in the great recession. He also
makes it very clear why. The gutting of the American economy and the
rigging of its financial games are not accidents. They were planned by those who want to suffocate the rest of this economy and keep the spoils.
The first chapter tears into Alan Greenspan and Objectivism, which makes for fun and enlightening reading. However, my favourite chapters are the one dealing with the mortgage scam and the commodities bubble. This last is very interesting as it highlights how the artificially inflated commodities prices--no thanks to the work of the Fed, Goldman Sachs, and its clones--leading up to the recession received such little press both during and after the fact. This is the first decent treatment about this event that I've read so far, in three years of reading about the recession and its causes. So, if you read only one chapter, let this be it.
Taibbi also explores the strange and alarming phenomenon of cities and municipalities selling off public assets for short-term budget stopgaps in The outsourced highway, and ends with a primer on the mismanagement of healthcare reform in The trillion-dollar band-aid. Both of these issues have also been either underreported or misreported and Taibbi's shedding light on these subjects is not just illuminating but necessary.
To make myself feel better, I read Aftershock by Robert Reich. The liberal themes of fairness he echoes in his work are something I have believed in all my life, and have always had trouble justifying empirically. People may react strongly to Reich and call his ideas socialist, communist, Marxist. But the truth is that there is something profoundly democratic, even republican, about a society that is willing to lift up its least fortunate, even if it means the most fortunate must pay for it with slightly higher taxes. It's not such a far-fetched argument and neither is it alien to humanity's most noble callings.
This is a short book, and that's a good thing. The basic idea is so straightforward and so common-sense that it practically defends itself. However, Reich goes one step further by analysing historical data of trends in American (in)equality and prosperity. Although it's impossible to say that history will indeed rhyme, it's not implausible to suggest that an ever-wider income gulf will result in the election of an economy-destroying regime, which would hurt the rich even more than a fair redistribution of their outsized wealth. Their choice, therefore, is not between higher and lower taxes. The choice is between higher taxes and the ultimate destruction of their source of wealth, which more than anything is global trade. The tide will turn, Reich says, and we must now decide how that will come to pass.
Reich's masterstroke is the last few pages, where he details specific recommendations toward achieving a new wealth balance. The par-for-the-course higher taxes for the wealthy are matched with a reemployment system to replace the unemployment system, school vouchers based on family income, college loans linked to subsequent earnings, medicare for all, and an increased investment in public goods. He also details the realpolitik side of how things could get done, which mostly involves ever-increasing public pressure on private entities and the election of true representatives of the working classes to the halls of power. These sections alone make the book well worth reading.
The writing was good and the theme is of paramount importance to the United States now, but to all countries in general. Like Reich, I hope the people and the powers that be heed this call. Make your teachers read this book.
Monday, June 13, 2011
The Black Swan
I recently finished reading The Black Swan, by Nicholas Nassim Taleb. The man is a force of nature. Reading Swan feels like reading a little of Godel, Escher, Bach, a little of Black Holes and Baby Universes, and a dose of Gladwellian flavor, but with a distinct scientific rigour aftertaste, which is very kind on the mental palate. Of course, Taleb's work revolves around economics and financial markets, but like a satellite orbiting its planet, its readings and conclusions are distinctly un-finance-like, and have the benefit of excellent, readable, and entertaining prose; narrative, both as personal or historical anecdote and as fiction; and compelling insights to the nature of the black swan.
There is little negative I can say about this book. It's the best work of nonfiction I've read in months, perhaps years. Taleb is a master wordsmith and is erudite without being pedantic. In fact, his humour often stems from making fun of pedants, most of whom end up being French. The amazing amount of reading and knowledge that needs to be packed into a brain such as Taleb's to write this book is humbling, and it is also what makes this book so engrossingly interesting, because the author weaves together stories and scientific hypothesis like a composer matching oboes to organs. What could have been a dry academic paper or a boring technical primer (think Roubini's Crisis Economics) comes alive instead as a true work of literary--nonfiction--art.
As to the book's main topic, the black swan--and its black sheep cousin, the grey swan--is a very interesting topic in its own right. It's certainly worthy of deeper study, at the very least the college level, as it is a subject woefully absent from the contemporary economic and finance conversation. Ironically, the book even briefly touches on the then as-yet-not-occurred economic crisis, in a footnote, where Taleb quickly notes how extraordinarily risky the obligations of certain American quasi-public mortgage-securitising companies are; a note that may have perhaps earned a smart and opened-eyed reader of the hot-off-the-press edition some shorting money. Of course, reading this book in 2011 it is easy to be cynical about the black swan (as in, "duh!"), but in 2007, when the book came out, Taleb mainly had to reference the S&L crisis, the crash of 1987, and the collapse of LTCM in 1998, crises so contained that few readers my age would even know or remember them, unless they had, as I did, studied them in classroom settings. So it is easy to see how, had the book come out at a different time--even five years prior--it may have been roundly dismissed and forgotten. This, another "Godel-Escher-Bach" recursive irony; The Black Swan itself is a black swan. Thankfully, though, the book came out when it did, and has brought at least some attention to the black swan phenomenon, which, sadly, the financial industries have gone right back to ignoring.
In closing, I would recommend this book to anyone who has a yearning for great prose, great philosophising, great storytelling, or great fun. Of course, some literary or scientific maturity is called for; this is not Twilight. Set your standards high. You will not be disappointed.
There is little negative I can say about this book. It's the best work of nonfiction I've read in months, perhaps years. Taleb is a master wordsmith and is erudite without being pedantic. In fact, his humour often stems from making fun of pedants, most of whom end up being French. The amazing amount of reading and knowledge that needs to be packed into a brain such as Taleb's to write this book is humbling, and it is also what makes this book so engrossingly interesting, because the author weaves together stories and scientific hypothesis like a composer matching oboes to organs. What could have been a dry academic paper or a boring technical primer (think Roubini's Crisis Economics) comes alive instead as a true work of literary--nonfiction--art.
As to the book's main topic, the black swan--and its black sheep cousin, the grey swan--is a very interesting topic in its own right. It's certainly worthy of deeper study, at the very least the college level, as it is a subject woefully absent from the contemporary economic and finance conversation. Ironically, the book even briefly touches on the then as-yet-not-occurred economic crisis, in a footnote, where Taleb quickly notes how extraordinarily risky the obligations of certain American quasi-public mortgage-securitising companies are; a note that may have perhaps earned a smart and opened-eyed reader of the hot-off-the-press edition some shorting money. Of course, reading this book in 2011 it is easy to be cynical about the black swan (as in, "duh!"), but in 2007, when the book came out, Taleb mainly had to reference the S&L crisis, the crash of 1987, and the collapse of LTCM in 1998, crises so contained that few readers my age would even know or remember them, unless they had, as I did, studied them in classroom settings. So it is easy to see how, had the book come out at a different time--even five years prior--it may have been roundly dismissed and forgotten. This, another "Godel-Escher-Bach" recursive irony; The Black Swan itself is a black swan. Thankfully, though, the book came out when it did, and has brought at least some attention to the black swan phenomenon, which, sadly, the financial industries have gone right back to ignoring.
In closing, I would recommend this book to anyone who has a yearning for great prose, great philosophising, great storytelling, or great fun. Of course, some literary or scientific maturity is called for; this is not Twilight. Set your standards high. You will not be disappointed.
The price of oil and other stories
I randomly checked out Steiner's book $20 Per Gallon: How the Inevitable Rise in the Price of Gasoline Will Change Our Lives for the Better from NYPL one day I was perusing the first floor nonfiction in the Mid-Manhattan library. Although I enjoyed reading about the different effects the inevitable climb of oil prices would have on our economies and our lives, I was ultimately a bit disappointed at the light and perhaps overly optimistic conclusions, the awkward ordering and thin analysis, and lastly the bouncy, overused journalistic prose--what Nicholas Nassim Taleb has termed "the journalistic prevarications of contemporary narrative nonfiction".
Leaving aside the "clear April morning"s and such, perhaps the most obvious hole is, perhaps intentionally, the total political havoc the increase in the cost of oil will cause, at least in this country. Truth be told leaving this out may be a good decision, because that is a whole set of different books, and this one is focusing on the economic effects. Even there, though, Steiner doesn't go far enough. He outlined his and others' predictions--clearly, I will say, and sometimes convincingly--but sometimes the proposed solutions are either, as I said, overly optimistic, or flat-out impossible.
For example, Steiner describes how the airline industry will shrink, and how the rail system will expand as oil prices climb. That was done well. However, getting to the automobile industry, the same misconceptions and misinformation that plague current pop mechanics about the future of automobiles plague Steiner's work. The truth is hydrogen vehicles are and will remain a fiction, because there is no known way to cost-effectively mass-produce, or re-engineer, a true replacement to the automobile as we know it--too many of its actual components (resins, chemicals, plastics), if not its fuel, depend on the existence of cheap petroleum. Steiner does not address this issue. Nor does he address the problem with hydrogen, mainly that it is also a fossil fuel (manufactured from natural gas), but also that it is vastly difficult to transport and store.
As a side note, I also felt the order Steiner chose--six-dollar gas, eight-dollar gas, et cetera, up to twenty-dollar gas--was not only rather strangely conceived but also skirted the issue of thirty-, forty-, fifty-dollar gas, and so on. I would have preferred organisation according to sector. Also, I would have preferred to know what happens beyond twenty-dollar gas. Granted that at twenty-dollar gas, a barrel of oil will cost something like $400, which may well be beyond the plateau of what the marketplace will feasibly accept. However, many indispensable items will still continue to be manufactured exclusively from oil, especially most types of plastics, medicines, and chemicals. There is no replacement for petroleum in the foreseeable future, and as long as oil is recoverable somewhere, recovered it shall be. Even as a barrel soars past the $500 mark.
Still, I laud Steiner's effort as one of the first serious investigations into perhaps the most pressing issue the world economy will face this century. Already we can see workarounds popping up, which is heartening, and Steiner does a good job of expanding on those that are known, and sheds light on some that are not as ubiquitous.
Leaving aside the "clear April morning"s and such, perhaps the most obvious hole is, perhaps intentionally, the total political havoc the increase in the cost of oil will cause, at least in this country. Truth be told leaving this out may be a good decision, because that is a whole set of different books, and this one is focusing on the economic effects. Even there, though, Steiner doesn't go far enough. He outlined his and others' predictions--clearly, I will say, and sometimes convincingly--but sometimes the proposed solutions are either, as I said, overly optimistic, or flat-out impossible.
For example, Steiner describes how the airline industry will shrink, and how the rail system will expand as oil prices climb. That was done well. However, getting to the automobile industry, the same misconceptions and misinformation that plague current pop mechanics about the future of automobiles plague Steiner's work. The truth is hydrogen vehicles are and will remain a fiction, because there is no known way to cost-effectively mass-produce, or re-engineer, a true replacement to the automobile as we know it--too many of its actual components (resins, chemicals, plastics), if not its fuel, depend on the existence of cheap petroleum. Steiner does not address this issue. Nor does he address the problem with hydrogen, mainly that it is also a fossil fuel (manufactured from natural gas), but also that it is vastly difficult to transport and store.
As a side note, I also felt the order Steiner chose--six-dollar gas, eight-dollar gas, et cetera, up to twenty-dollar gas--was not only rather strangely conceived but also skirted the issue of thirty-, forty-, fifty-dollar gas, and so on. I would have preferred organisation according to sector. Also, I would have preferred to know what happens beyond twenty-dollar gas. Granted that at twenty-dollar gas, a barrel of oil will cost something like $400, which may well be beyond the plateau of what the marketplace will feasibly accept. However, many indispensable items will still continue to be manufactured exclusively from oil, especially most types of plastics, medicines, and chemicals. There is no replacement for petroleum in the foreseeable future, and as long as oil is recoverable somewhere, recovered it shall be. Even as a barrel soars past the $500 mark.
Still, I laud Steiner's effort as one of the first serious investigations into perhaps the most pressing issue the world economy will face this century. Already we can see workarounds popping up, which is heartening, and Steiner does a good job of expanding on those that are known, and sheds light on some that are not as ubiquitous.
Monday, November 1, 2010
Notes on I.O.U. and Too Big to Fail
I.O.U.: Why Everyone Owes Everyone and No One Can Pay was suggested to me by Nick when I asked if he'd read any good books on the financial crisis. So when I spotted it at the library I grabbed it and read it in about ten days, which was extremely fast for me. It's fair to say that it was very satisfying, because when I was done I felt I had a much better grasp of what happened. The trick, of course, is in the remembering.
Lanchester has a way with words, and the way he explains things makes complicated financial products described in acronyms like CDO and CDS and SPV something navegable. His analysis is spot-on, but American-centric readers (like myself) will probably find issue with his Britain-centrism. No matter--he does a splendid job of explaining the compounding of errors, mistakes, oversights and climates that contributed to the crisis, and at slightly over 200 pages this makes an excellent primer for anyone.
A popular saying goes, never underestimate the power of denial. A corollary could be added: Denial is safety, and with acceptance comes risk. For risk is not merely the ancilla of denial; it is its raison d'être.
To properly understand the reasons the financial crisis occurred, it helps, as in Economics, to comprehend both the micro and macro views. Lanchester provides, as do many other authors, a very good, concise, and well-written macro perspective. But you would be hard-pressed to find in the rest of today's popular literature a better micro analysis than that in Andrew Ross Sorkin's magnificent Too Big to Fail.
Sorkin spins an excellent yarn, and the result is astounding. By reconstructing, bit by bit, the many characters and conversations before, during and after the financial crisis, Sorkin gives a vivid voice to the people involved in rescuing the financial system, from government figures to industry magnates and the many people who were sacrificed on the altar of stability and investor confidence. The level of detail the author delves into is quite mind-boggling and the fact that this book came out mere months after the financial crisis was "over" doubles the impressive. Sorkin's finely honed narrative style commands great attention; my sclerotic reading habits nonwithstanding, I felt comfortable picking up right where I left off every time.
The story is fascinating, and the actual persons involved in the deals are stunning. These people were, after all, rewriting history. Sorkin picks up in the debris of Bear Stearns, guides us through the months leading up to Lehman's collapse, and finally shares the radical rethinking that led to TARP, the bailout of AIG, the psychopathic megamerger that saved Merrill, and the frantic dealmaking at Morgan Stanley that culminated in a fantastical nine-billion-dollar check from Mitsubishi. You can't make this stuff up.
Reading general books about the crisis is all well and good if one wants to understand the underpinnings and infrastructure of the collapse. But to read about the actual personalities that shaped the outcome gives the reader a totally different, much broader, and much more complete perspective of why what happened happened. To anyone interested in the mechanics of those fateful days in 2008, I highly recommend this excellent tome. In fact, my only gripe is that--at over 500 pages--it was not more detailed.
Lanchester has a way with words, and the way he explains things makes complicated financial products described in acronyms like CDO and CDS and SPV something navegable. His analysis is spot-on, but American-centric readers (like myself) will probably find issue with his Britain-centrism. No matter--he does a splendid job of explaining the compounding of errors, mistakes, oversights and climates that contributed to the crisis, and at slightly over 200 pages this makes an excellent primer for anyone.
A popular saying goes, never underestimate the power of denial. A corollary could be added: Denial is safety, and with acceptance comes risk. For risk is not merely the ancilla of denial; it is its raison d'être.
To properly understand the reasons the financial crisis occurred, it helps, as in Economics, to comprehend both the micro and macro views. Lanchester provides, as do many other authors, a very good, concise, and well-written macro perspective. But you would be hard-pressed to find in the rest of today's popular literature a better micro analysis than that in Andrew Ross Sorkin's magnificent Too Big to Fail.
Sorkin spins an excellent yarn, and the result is astounding. By reconstructing, bit by bit, the many characters and conversations before, during and after the financial crisis, Sorkin gives a vivid voice to the people involved in rescuing the financial system, from government figures to industry magnates and the many people who were sacrificed on the altar of stability and investor confidence. The level of detail the author delves into is quite mind-boggling and the fact that this book came out mere months after the financial crisis was "over" doubles the impressive. Sorkin's finely honed narrative style commands great attention; my sclerotic reading habits nonwithstanding, I felt comfortable picking up right where I left off every time.
The story is fascinating, and the actual persons involved in the deals are stunning. These people were, after all, rewriting history. Sorkin picks up in the debris of Bear Stearns, guides us through the months leading up to Lehman's collapse, and finally shares the radical rethinking that led to TARP, the bailout of AIG, the psychopathic megamerger that saved Merrill, and the frantic dealmaking at Morgan Stanley that culminated in a fantastical nine-billion-dollar check from Mitsubishi. You can't make this stuff up.
Reading general books about the crisis is all well and good if one wants to understand the underpinnings and infrastructure of the collapse. But to read about the actual personalities that shaped the outcome gives the reader a totally different, much broader, and much more complete perspective of why what happened happened. To anyone interested in the mechanics of those fateful days in 2008, I highly recommend this excellent tome. In fact, my only gripe is that--at over 500 pages--it was not more detailed.
Monday, May 10, 2010
First as Tragedy, then as Farce
I recently finished reading Slavoj Zizek's book First as Tragedy, Then as Farce, which I received as a Christmas gift. This is the first of Zizek's books that I read, but I suspect not the last (in part because I was also gifted several others). This is a difficult book to review. Zizek's writing style is erudite, and obviously sometimes this makes certain passages unparsable. However, beneath the densely worded and implicitly referenced philosophical ideas in texts I've never read by authors I've never heard of, there are very many interesting ideas and a fascinating argument to be considered.
Zizek takes his cue from the currently ongoing «privatisation of the commons» of «the shared substance of our social being»--namely, the commons of culture; the commons of external nature; and the commons of internal nature. These three are interrelated because they are all major antagonisms raging within modern capitalism, along with a fourth antagonism, the creation of new forms of apartheid. Together, these four antagonisms are tearing at the fabric of democracy from within, because as capitalism is allowed to continue unfettered, there arises an inevitable struggle to enclose any potential rent-producing activity, which is subsequently commodified for consumption. So just as things like copyright law are eroding the commons of culture, pollution is eroding the commons of external nature, and our internal nature--i.e. our genes and chromosomes--is increasingly patented and handled.
It is illuminating to think of Zizek's point as a counterpoint to the Right's claim that free markets are the ultimate good and that government regulation is the ultimate evil. AS Zizek states, «new domains, hitherto excluded from the market, are now commodified. . . . we are in the midst of a new process of privatization of the social . . . of the privatization of the "general intellect" itself--and this is what lies at the core of the struggle over "intellectual property".» Nowadays, therefore, increasingly direct legal regulatory authority is required in order to impose the arbitrary legal conditions for extracting rents from activities which are now easy to obtain for free, such as music. It is here, Zizek notes, that the fundamental contradiction of modern capitalism lays: «while its logic is de-regulatory [and] anti-statal», the present-day application of regulatory law to preserve rents that modern technology has made obsolete «signals a strengthening of the role of the state whose regulatory function is ever more omnipresent. . . . far from disappearing, the state is today gathering strength.»
To counter this path, Zizek offers Communism, and suggests that it will be pure voluntarism, the mobilization of individuals, which will make the difference and provide the grassroots impetus that will impede the enclosure of the commons and show the way forward. Of course, he is right, at least in the medium term. More concrete solutions, though, would have been much appreciated. Zizek is however a philosopher, not an engineer.
I overall enjoyed the book very much, at least until it became abstruse and inaccesible with references to Badiou and Foucault and Kant and Hegel. This is not Zizek's fault, though, it is mine. As you can see from this list, I have not read anything any of these people have written. I liked that I was able to read most of the book with relative ease, though, and I liked that it make me think quite a lot. In fact, I liked the book so much that I reread parts of it immediately after finishing so that I could annotate them. I have not done that since college. I highly recommend this book.
Zizek takes his cue from the currently ongoing «privatisation of the commons» of «the shared substance of our social being»--namely, the commons of culture; the commons of external nature; and the commons of internal nature. These three are interrelated because they are all major antagonisms raging within modern capitalism, along with a fourth antagonism, the creation of new forms of apartheid. Together, these four antagonisms are tearing at the fabric of democracy from within, because as capitalism is allowed to continue unfettered, there arises an inevitable struggle to enclose any potential rent-producing activity, which is subsequently commodified for consumption. So just as things like copyright law are eroding the commons of culture, pollution is eroding the commons of external nature, and our internal nature--i.e. our genes and chromosomes--is increasingly patented and handled.
It is illuminating to think of Zizek's point as a counterpoint to the Right's claim that free markets are the ultimate good and that government regulation is the ultimate evil. AS Zizek states, «new domains, hitherto excluded from the market, are now commodified. . . . we are in the midst of a new process of privatization of the social . . . of the privatization of the "general intellect" itself--and this is what lies at the core of the struggle over "intellectual property".» Nowadays, therefore, increasingly direct legal regulatory authority is required in order to impose the arbitrary legal conditions for extracting rents from activities which are now easy to obtain for free, such as music. It is here, Zizek notes, that the fundamental contradiction of modern capitalism lays: «while its logic is de-regulatory [and] anti-statal», the present-day application of regulatory law to preserve rents that modern technology has made obsolete «signals a strengthening of the role of the state whose regulatory function is ever more omnipresent. . . . far from disappearing, the state is today gathering strength.»
To counter this path, Zizek offers Communism, and suggests that it will be pure voluntarism, the mobilization of individuals, which will make the difference and provide the grassroots impetus that will impede the enclosure of the commons and show the way forward. Of course, he is right, at least in the medium term. More concrete solutions, though, would have been much appreciated. Zizek is however a philosopher, not an engineer.
I overall enjoyed the book very much, at least until it became abstruse and inaccesible with references to Badiou and Foucault and Kant and Hegel. This is not Zizek's fault, though, it is mine. As you can see from this list, I have not read anything any of these people have written. I liked that I was able to read most of the book with relative ease, though, and I liked that it make me think quite a lot. In fact, I liked the book so much that I reread parts of it immediately after finishing so that I could annotate them. I have not done that since college. I highly recommend this book.
Monday, March 2, 2009
On The New Paradigm for Financial Markets
I just finished reading The New Paradigm for Financial Markets: The credit crisis of 2008 and what it means, by George Soros. I quite liked this book. I shall explain.
The book deals mainly with Soros's «Theory of Reflexivity», which is a hypothesis on the workings of societies which postulates that human endeavours cannot be completely modelled mathematically, because the inherent endogeneity of such processes will affect the direction of the result from the quantum to the macro level, c.f. the butterfly effect. Human constructs suffer from «radical fallibility»: they are all ultimately flawed, though the flaws may be hidden long enough for the constructs to flourish. Such is the case, Soros argues, with financial markets and the theory of equilibrium: though the theory has allowed unprecedented growth and wealth creation since World War II, the cracks in the systems of credit expansion and the «market fundamentalism» doctrine of the Reagan and Bush years have finally begun to show. We are living through a pivot point in the history of the financial markets; as the American model of capitalism based on market fundamentalism (i.e., «the market is always right») crumbles before our eyes, a new paradigm to explain the behaviour of financial markets is needed. Soros here proposes his theory of reflexivity. Only when we comprehend how market participants may influence the very fundamentals of the markets will we gain a fuller understanding of their behaviour.
A very wordy summary, but there you go. The book made sense to me, and I liked it. Soros has a very good point when he says that economics ignores to its detriment many of the real-life characteristics of markets, e.g. that supply and demand are not given but are the active consequence of markets, or that rational expectations do not always exist. His theory makes sense; however, it's also too vague not to, it seems. Hopefully, he will be able to flesh out the theory a bit in the future.
The book deals mainly with Soros's «Theory of Reflexivity», which is a hypothesis on the workings of societies which postulates that human endeavours cannot be completely modelled mathematically, because the inherent endogeneity of such processes will affect the direction of the result from the quantum to the macro level, c.f. the butterfly effect. Human constructs suffer from «radical fallibility»: they are all ultimately flawed, though the flaws may be hidden long enough for the constructs to flourish. Such is the case, Soros argues, with financial markets and the theory of equilibrium: though the theory has allowed unprecedented growth and wealth creation since World War II, the cracks in the systems of credit expansion and the «market fundamentalism» doctrine of the Reagan and Bush years have finally begun to show. We are living through a pivot point in the history of the financial markets; as the American model of capitalism based on market fundamentalism (i.e., «the market is always right») crumbles before our eyes, a new paradigm to explain the behaviour of financial markets is needed. Soros here proposes his theory of reflexivity. Only when we comprehend how market participants may influence the very fundamentals of the markets will we gain a fuller understanding of their behaviour.
A very wordy summary, but there you go. The book made sense to me, and I liked it. Soros has a very good point when he says that economics ignores to its detriment many of the real-life characteristics of markets, e.g. that supply and demand are not given but are the active consequence of markets, or that rational expectations do not always exist. His theory makes sense; however, it's also too vague not to, it seems. Hopefully, he will be able to flesh out the theory a bit in the future.
Monday, February 16, 2009
Access to technology and other issues
1. The industrial development of developing countries is hampered by their lack of technologies. Give two major reasons with brief explanations as to why the developing countries lack access to appropriate technology.
New technologies tend to naturally diffuse throughout the areas where they are most useful. Depending on their level of development, different countries may obtain access to new technologies at different times. The first consideration is usually a cost-benefit analysis. For instance: usually, technologies seek to replace labour-intensive activities with a more capital-intensive approach, e.g. replacing oxen with tractors. However, a cost-benefit analysis carried out in a developing country where oxen are relatively plentiful and cheap, and where tractors are expensive to import and maintain, will conclude that it is still more cost-effective to use oxen over tractors. Supposing the cost-benefit hurdle is cleared, new problems will arise. Since new technology must almost always be imported, and since there is usually a learning curve in the operation of the new technologies, the technical assistance and knowhow to maintain and repair the technologies must also be imported, which dampens their effectiveness and stunts the growth of the domestic labour market. Moreover, the rapid obsolescence of new technologies perpetuates the game of catch-up, which further enhances the labour market deficiencies in domestic economies.
2. Briefly explain why capital formation is considered to be an essential ingredient of economic expansion and diversification.
The formation of new physical and human capital lies at the crux of economic growth, because growth depends on the discovery and utilisation of new efficiencies and markets. The formation of new human capital drives innovation and entrepreneurship, which are essential for a vibrant business environment and elimination of inefficiency and waste. Increased human capital brings about the formation of new physical capital--new goods--or creates more efficient methods of production via greater competition. At the same time, increased efficiency enhances competition and creates new markets in a feedback loop. Successful models of entrepreneurship and innovation encourage further investment, and this promotes economic growth.
3. Suppose you are given a set of differential rates of inflation for a group of market-type economies. What effects might such differences have on exchange rates in the short and long run under flexible and fixed exchange rate systems?
Flexible exchange-rate systems, such as a float or a managed float, will allow money to flow to the most profitable currencies. Assuming macroeconomic policies and interest rate regimes are all identical in the given economies, monies will flow into the economies least affected by inflation, where the funds' value will depreciate the least. The influx of investment into the lower-inflation economies will cause upward pressure in prices and wages, which will increase inflation. At the same time, the outflow of funds from high-inflation economies will exert downward pressure on prices and wages and will prompt banks to raise interest rates in order to attract savings, all of which will lower inflation. The long-term result, barring any external shocks, will be an equalisation of inflation rates among the given economies.
Under a fixed exchange-rate regime, the situation will differ slightly depending on each country's monetary policy. Assuming all the economies have identical fixed exchange-rate regimes, the short-term result of an endogenous rise in inflation in one country will be pressure on the peg and, if the pressure is not relieved via open market operations (OMOs), the formation of a black market in forex. This is where monetary policy will come into play: central banks cannot control black markets, but they may dampen their usefulness with good management of the money supply and interest rates. In an inflationary environment under a fixed exchange rate, a central bank may raise interest rates (and occasionally reserve requirements) to discourage investment flight. The central bank may also carry out OMOs in the form of issuing debt in order to take excess money out of the financial system, thereby creating incentives to save.
4. Specify under which conditions a country can show a current account surplus at the same time as a trade balance deficit. Specify also the conditions under which the current and trade accounts are in deficit while the overall balance of payments is in surplus. Briefly discuss.
Disclaimer: I had to cheat for this one. Wikipedia ftw.
A country's current account is defined as its trade balance plus net factor income and net unilateral transfers from abroad. Therefore, a country may show a trade balance deficit--i.e. it has imported more than it has exported--but still possess a current account surplus if the net factor income and net unilateral transfers from abroad exceed the trade balance deficit.
The balance of payments is composed of the sum of the current account, the capital account, and the financial account. Therefore, if both the current and trade accounts are in deficit, a country may still show an overall balance-of-payments surplus if the sum of the capital account and the financial account exceed the current account deficit.
5. If the income elasticity of imports in a developing country is 1.75 and GNP is growing at 7 percent per annum, at what rate would you expect real imports to grow on average? Give two reasons why the growth of imports tends to out-strip the growth of GNP and exports in developing countries. Discuss three possible policies designed to curb the rate of growth of imports.
The growth of imports tends to outstrip the growth of GNP and exports in developing countries due to the increased reliance on debt as a source of domestic funds. The growth rate of imports can be curbed via import tariffs and quotas.
6. Discuss the economic rationale and the goodness of statistical fit of the statistically estimated relationship set out below. Would the estimated relationship suggest policy recommendations?
C(t) = 100.27 + 0.73 Y(t) - 1.25 r(t-1)
(1.06) (4.17) (-0.35)
R-sq = 0.922
DW = 1.73
n = 37
C(t): private consumption in real terms;
Y(t): personal disposable income deflated by the consumer price index;
r(t): Nominal interest rate minus the rate of increase in consumer prices.
The equation above would seem to indicate a statistically significant correlation between private consumption in real terms (C(t)) and personal disposable income deflated by the consumer price index, and no significant correlation between C(t) and the nominal interest rate minus the rate of increase in consumer prices. However, there are serious problems with this regression. The sample population is extremely small at 37 observations, which is barely enough for a statistical regression under the central limit theorem. The value of R squared is huge for a statistical relationship, suggesting there exist significant autocorrelation and endogeneity problems in this regression.
7. An investment project is expected to yield, in constant dollars, returns of $100, $100 and $1,100 at the end of 1, 2 and 3 years respectively and nothing thereafter. If the investment costs $1,000 now, would it be profitable at an expected real interest rate of 8 percent per annum? 12 percent?
Using the compound interest formula E = Ae^rt, saving $1000 would yield $1271.25 after three years at 8% interest and $1433.33 at 12% interest. Therefore, the investment is profitable under the 8% interest rate regime but not under the 12% interest rate regime.
8. Given a fiscal deficit, describe two ways in which such a deficit could be financed and explain whether each way would have different impacts on the economy.
There are only two ways to finance any deficit: spend less or issue more debt. Spending less will ease the deficit but will be painful financially and politically, while issuing more debt will deepen it but delay the pain. To spend less government services and consumption must be cut or scaled back, and maturing debt must be repaid. This may be contractionary in the short term, depending on the health of the private economy and its size relative to the public economy, but it is likely to provide for a healthier economy in the long run given that a reduction in debt will likely be passed on to the citizenry in the form of a lowered tax burden.
The issuance of more debt to finance a fiscal deficit is liable to have a short-term stimulating effect on the whole economy. However, depending on what the source of the additional debt is, what the terms of repayment are, and how that additional debt is managed, the long-term result is likely to be counterproductive, as the debt will eventually be passed on to the people in the form of new or higher taxes. Furthermore, mismanaged debt usually results in macroeconomic instability in the form of inflation and misdirected appropriations.
9. It is said that, under fixed exchange rates, countries lose control over monetary policy, while under flexible exchange rates they have full control over this policy instrument. Explain briefly your agreement or disagreement with this statement.
Economic theory holds that countries must make trade-offs regarding the following: (1) Free capital movements, (2) a fixed exchange rate, and (3) the ability to effectively use monetary policy. This is called the "Impossible Trinity", because it is not possible to have all three at once; countries must choose which two they prefer and renounce the third. Under fixed exchange rates, countries may still control monetary policy if they restrict free capital flows. Currently, China is the preferred example of this: the yuan renminbi is pegged to the dollar, and Chinese authorities can still use monetary policy to regulate the economy as capital flows are strictly regulated. In Western countries where capital movement has been liberalised, however, countries must choose between monetary policy or a fixed exchange rate. Britain, for example, has opted to retain use of monetary policy and allowing the pound to float; while most of continental Europe has renounced independent monetary policy in order to peg their currencies to the Euro.
Therefore, the statement above is correct only if we assume that capital flows are unregulated.
10. Many countries in the world are seeking to privatise their public sector enterprises. What difficulties do you see for a developing country in such privatisation?
Public sector enterprises (PSEs) often are inefficient because they do not adequately respond to market incentives. However, this is not just a curse; in many cases, it is also a blessing, because often public projects have goals that markets have continually failed to reach, and as such are probably unprofitable and unattractive to private enterprises. Examples include building of roads to remote populations, expanding electricity and potable water supply to these areas, and building appropriate education and health infrastructure there. Once these are set up, governments have an incentive to keep costs for these services low, while market-based solutions often will not. Therefore, the overarching difficulty privatised PSEs face is maintaining a minimum level of service and expanding service to hard-to-reach/unprofitable populations even while maintaining overall profitability.
Another set of difficulties developing countries will face in privatisation of PSEs is the proper and orderly transfer of the PSE from government to private control. There are many ways for the process to fail. If the wrong auction model is chosen, PSEs may end up being sold at far below their market value. If collusion between potential buyers is not spotted and action is not taken, the same could happen. If there is corruption at the government level, the PSE may be underpriced or sold to a favoured bidder rather than the highest bidder, thus robbing the state of a vast amount of funds. There are many other ways the transfer process can go awry.
Finally, another difficulty privatised PSEs may face is proper management under private ownership. It is not uncommon for a privatised PSE to function for a few years, find it cannot maintain profitability, and neglect infrastructure for years before something vital fails and the state is forced to re-enter the picture, re-nationalise the project, and take on the financial burden of years of neglect. The state has an obligation, even under the privatised model, to carefully audit and supervise the maintenance of the infrastructure. Though it is privatised, the state must still function to protect the interests of the citizenry.
New technologies tend to naturally diffuse throughout the areas where they are most useful. Depending on their level of development, different countries may obtain access to new technologies at different times. The first consideration is usually a cost-benefit analysis. For instance: usually, technologies seek to replace labour-intensive activities with a more capital-intensive approach, e.g. replacing oxen with tractors. However, a cost-benefit analysis carried out in a developing country where oxen are relatively plentiful and cheap, and where tractors are expensive to import and maintain, will conclude that it is still more cost-effective to use oxen over tractors. Supposing the cost-benefit hurdle is cleared, new problems will arise. Since new technology must almost always be imported, and since there is usually a learning curve in the operation of the new technologies, the technical assistance and knowhow to maintain and repair the technologies must also be imported, which dampens their effectiveness and stunts the growth of the domestic labour market. Moreover, the rapid obsolescence of new technologies perpetuates the game of catch-up, which further enhances the labour market deficiencies in domestic economies.
2. Briefly explain why capital formation is considered to be an essential ingredient of economic expansion and diversification.
The formation of new physical and human capital lies at the crux of economic growth, because growth depends on the discovery and utilisation of new efficiencies and markets. The formation of new human capital drives innovation and entrepreneurship, which are essential for a vibrant business environment and elimination of inefficiency and waste. Increased human capital brings about the formation of new physical capital--new goods--or creates more efficient methods of production via greater competition. At the same time, increased efficiency enhances competition and creates new markets in a feedback loop. Successful models of entrepreneurship and innovation encourage further investment, and this promotes economic growth.
3. Suppose you are given a set of differential rates of inflation for a group of market-type economies. What effects might such differences have on exchange rates in the short and long run under flexible and fixed exchange rate systems?
Flexible exchange-rate systems, such as a float or a managed float, will allow money to flow to the most profitable currencies. Assuming macroeconomic policies and interest rate regimes are all identical in the given economies, monies will flow into the economies least affected by inflation, where the funds' value will depreciate the least. The influx of investment into the lower-inflation economies will cause upward pressure in prices and wages, which will increase inflation. At the same time, the outflow of funds from high-inflation economies will exert downward pressure on prices and wages and will prompt banks to raise interest rates in order to attract savings, all of which will lower inflation. The long-term result, barring any external shocks, will be an equalisation of inflation rates among the given economies.
Under a fixed exchange-rate regime, the situation will differ slightly depending on each country's monetary policy. Assuming all the economies have identical fixed exchange-rate regimes, the short-term result of an endogenous rise in inflation in one country will be pressure on the peg and, if the pressure is not relieved via open market operations (OMOs), the formation of a black market in forex. This is where monetary policy will come into play: central banks cannot control black markets, but they may dampen their usefulness with good management of the money supply and interest rates. In an inflationary environment under a fixed exchange rate, a central bank may raise interest rates (and occasionally reserve requirements) to discourage investment flight. The central bank may also carry out OMOs in the form of issuing debt in order to take excess money out of the financial system, thereby creating incentives to save.
4. Specify under which conditions a country can show a current account surplus at the same time as a trade balance deficit. Specify also the conditions under which the current and trade accounts are in deficit while the overall balance of payments is in surplus. Briefly discuss.
Disclaimer: I had to cheat for this one. Wikipedia ftw.
A country's current account is defined as its trade balance plus net factor income and net unilateral transfers from abroad. Therefore, a country may show a trade balance deficit--i.e. it has imported more than it has exported--but still possess a current account surplus if the net factor income and net unilateral transfers from abroad exceed the trade balance deficit.
The balance of payments is composed of the sum of the current account, the capital account, and the financial account. Therefore, if both the current and trade accounts are in deficit, a country may still show an overall balance-of-payments surplus if the sum of the capital account and the financial account exceed the current account deficit.
5. If the income elasticity of imports in a developing country is 1.75 and GNP is growing at 7 percent per annum, at what rate would you expect real imports to grow on average? Give two reasons why the growth of imports tends to out-strip the growth of GNP and exports in developing countries. Discuss three possible policies designed to curb the rate of growth of imports.
The growth of imports tends to outstrip the growth of GNP and exports in developing countries due to the increased reliance on debt as a source of domestic funds. The growth rate of imports can be curbed via import tariffs and quotas.
6. Discuss the economic rationale and the goodness of statistical fit of the statistically estimated relationship set out below. Would the estimated relationship suggest policy recommendations?
C(t) = 100.27 + 0.73 Y(t) - 1.25 r(t-1)
(1.06) (4.17) (-0.35)
R-sq = 0.922
DW = 1.73
n = 37
C(t): private consumption in real terms;
Y(t): personal disposable income deflated by the consumer price index;
r(t): Nominal interest rate minus the rate of increase in consumer prices.
The equation above would seem to indicate a statistically significant correlation between private consumption in real terms (C(t)) and personal disposable income deflated by the consumer price index, and no significant correlation between C(t) and the nominal interest rate minus the rate of increase in consumer prices. However, there are serious problems with this regression. The sample population is extremely small at 37 observations, which is barely enough for a statistical regression under the central limit theorem. The value of R squared is huge for a statistical relationship, suggesting there exist significant autocorrelation and endogeneity problems in this regression.
7. An investment project is expected to yield, in constant dollars, returns of $100, $100 and $1,100 at the end of 1, 2 and 3 years respectively and nothing thereafter. If the investment costs $1,000 now, would it be profitable at an expected real interest rate of 8 percent per annum? 12 percent?
Using the compound interest formula E = Ae^rt, saving $1000 would yield $1271.25 after three years at 8% interest and $1433.33 at 12% interest. Therefore, the investment is profitable under the 8% interest rate regime but not under the 12% interest rate regime.
8. Given a fiscal deficit, describe two ways in which such a deficit could be financed and explain whether each way would have different impacts on the economy.
There are only two ways to finance any deficit: spend less or issue more debt. Spending less will ease the deficit but will be painful financially and politically, while issuing more debt will deepen it but delay the pain. To spend less government services and consumption must be cut or scaled back, and maturing debt must be repaid. This may be contractionary in the short term, depending on the health of the private economy and its size relative to the public economy, but it is likely to provide for a healthier economy in the long run given that a reduction in debt will likely be passed on to the citizenry in the form of a lowered tax burden.
The issuance of more debt to finance a fiscal deficit is liable to have a short-term stimulating effect on the whole economy. However, depending on what the source of the additional debt is, what the terms of repayment are, and how that additional debt is managed, the long-term result is likely to be counterproductive, as the debt will eventually be passed on to the people in the form of new or higher taxes. Furthermore, mismanaged debt usually results in macroeconomic instability in the form of inflation and misdirected appropriations.
9. It is said that, under fixed exchange rates, countries lose control over monetary policy, while under flexible exchange rates they have full control over this policy instrument. Explain briefly your agreement or disagreement with this statement.
Economic theory holds that countries must make trade-offs regarding the following: (1) Free capital movements, (2) a fixed exchange rate, and (3) the ability to effectively use monetary policy. This is called the "Impossible Trinity", because it is not possible to have all three at once; countries must choose which two they prefer and renounce the third. Under fixed exchange rates, countries may still control monetary policy if they restrict free capital flows. Currently, China is the preferred example of this: the yuan renminbi is pegged to the dollar, and Chinese authorities can still use monetary policy to regulate the economy as capital flows are strictly regulated. In Western countries where capital movement has been liberalised, however, countries must choose between monetary policy or a fixed exchange rate. Britain, for example, has opted to retain use of monetary policy and allowing the pound to float; while most of continental Europe has renounced independent monetary policy in order to peg their currencies to the Euro.
Therefore, the statement above is correct only if we assume that capital flows are unregulated.
10. Many countries in the world are seeking to privatise their public sector enterprises. What difficulties do you see for a developing country in such privatisation?
Public sector enterprises (PSEs) often are inefficient because they do not adequately respond to market incentives. However, this is not just a curse; in many cases, it is also a blessing, because often public projects have goals that markets have continually failed to reach, and as such are probably unprofitable and unattractive to private enterprises. Examples include building of roads to remote populations, expanding electricity and potable water supply to these areas, and building appropriate education and health infrastructure there. Once these are set up, governments have an incentive to keep costs for these services low, while market-based solutions often will not. Therefore, the overarching difficulty privatised PSEs face is maintaining a minimum level of service and expanding service to hard-to-reach/unprofitable populations even while maintaining overall profitability.
Another set of difficulties developing countries will face in privatisation of PSEs is the proper and orderly transfer of the PSE from government to private control. There are many ways for the process to fail. If the wrong auction model is chosen, PSEs may end up being sold at far below their market value. If collusion between potential buyers is not spotted and action is not taken, the same could happen. If there is corruption at the government level, the PSE may be underpriced or sold to a favoured bidder rather than the highest bidder, thus robbing the state of a vast amount of funds. There are many other ways the transfer process can go awry.
Finally, another difficulty privatised PSEs may face is proper management under private ownership. It is not uncommon for a privatised PSE to function for a few years, find it cannot maintain profitability, and neglect infrastructure for years before something vital fails and the state is forced to re-enter the picture, re-nationalise the project, and take on the financial burden of years of neglect. The state has an obligation, even under the privatised model, to carefully audit and supervise the maintenance of the infrastructure. Though it is privatised, the state must still function to protect the interests of the citizenry.
The international division of labour
What are the main determinants of the international division of labour? In which types of economic activity has this division of labour progressed the most and what are its global advantages? Give examples based on the experiences of one or more countries.
The international division of labour is, for the most part, predicated on the benefits of economic specialisation. National economies most fully integrated into the global economy have experienced a shift towards the most efficient use of its resources, be they human resources, national capital, or geography. Economic activities that are easily transferrable between persons and require minimal capital investment are the likeliest to thrive in a globalised environment, as business will naturally flow to the most cost-effective solution. This partly explains the rise of manufacturing in Asia, the rise of financial services in the developed world, and the rise of information technology services in India, among other trends.
Economic specialisation pertains to any kind of economic activity performed by human agents where voluntary exchange of goods or services takes place. Any mutually beneficial exchange that has a locational advantage will be more successful--i.e. derive more profits--in that location. So, for instance, one may suppose there are two factories operating with identical constraints and producing identical products. However, if one factory is closer to the town marketplace, it will derive an economic advantage from lower transportation costs to the market and will be able to undercut its opponent. This is the essence of economic specialisation. However, specialisation includes not just factors of distance, but also human and physical capital. If workers are more skilled in one area of production in a particular country, they are likelier to derive greater benefit from focusing on production in this particular area of expertise. They needn't have an absolute advantage over other countries in production of this product, as long as they have a comparative one.
Thus has the international division of labour seen manufacturing jobs flow to countries where unskilled manual labour is cheaper--the developing world; and where domestic regulations favour direct business investment--East Asia. Cheap labour, combined with a stable macroeconomy and thus a favourable business climate, have been largely responsible for the rise of manufacturing in China in the past two decades. In contrast, areas such as Latin America, while possessing a surplus of cheap unskilled labour, fared comparatively less well in attracting manufacturers due to their comparatively higher wages for unskilled labour and their often unstable macroeconomies.
The comparative specialisation of financial services in the developed world stems again from the labour force. The developed world possesses a firm advantage in skilled labour, and given that financial services are highly flexible enterprises due to the international nature of financial capital, financial firms are likeliest to headquarter in highly active urban centers with the most advantageous proportion of skilled labour. Thus New York, London, Tokyo, and so forth are well-positioned to take advantage of this trend.
Information technology services are perhaps the most easily diffused and least cost-intensive of the new economy. A country such as India has many natural advantages in providing this service, e.g. a large population versed in English and a depressed wage level for unskilled labour. This has resulted in extraordinary savings for information technology firms (and thus consumers of such technology) as they are able to service many more customers via India than would otherwise be possible. At the same time, it has awarded India a comparative advantage in the area of information technology services via network effects.
Availability of certain forms of physical capital can also be a crucial comparative advantage in certain industries. Depending on their geography, countries may possess farming, ranching, mining, and other advantages over others. Countries near the equator will be better at producing bananas, and countries with mediterranean-like weather conditions will produce better wine. Geography can also be crucial in specialising labour towards trade services. Places like Singapore, Hong Kong, Panama, and Sinai possess natural geographical advantages that encourage growth and investment in trade and all aspects of services associated with trade.
Economic specialisation, whether it be absolute or comparative, is largely responsible for the current international division of labour. Countries, just like individuals, will specialise in whatever discipline or area best suits them based on their endowments and levels of investment in education and physical capital. The most cost-effective solution will tend towards the most profits and the most success, both domestically and internationally.
The international division of labour is, for the most part, predicated on the benefits of economic specialisation. National economies most fully integrated into the global economy have experienced a shift towards the most efficient use of its resources, be they human resources, national capital, or geography. Economic activities that are easily transferrable between persons and require minimal capital investment are the likeliest to thrive in a globalised environment, as business will naturally flow to the most cost-effective solution. This partly explains the rise of manufacturing in Asia, the rise of financial services in the developed world, and the rise of information technology services in India, among other trends.
Economic specialisation pertains to any kind of economic activity performed by human agents where voluntary exchange of goods or services takes place. Any mutually beneficial exchange that has a locational advantage will be more successful--i.e. derive more profits--in that location. So, for instance, one may suppose there are two factories operating with identical constraints and producing identical products. However, if one factory is closer to the town marketplace, it will derive an economic advantage from lower transportation costs to the market and will be able to undercut its opponent. This is the essence of economic specialisation. However, specialisation includes not just factors of distance, but also human and physical capital. If workers are more skilled in one area of production in a particular country, they are likelier to derive greater benefit from focusing on production in this particular area of expertise. They needn't have an absolute advantage over other countries in production of this product, as long as they have a comparative one.
Thus has the international division of labour seen manufacturing jobs flow to countries where unskilled manual labour is cheaper--the developing world; and where domestic regulations favour direct business investment--East Asia. Cheap labour, combined with a stable macroeconomy and thus a favourable business climate, have been largely responsible for the rise of manufacturing in China in the past two decades. In contrast, areas such as Latin America, while possessing a surplus of cheap unskilled labour, fared comparatively less well in attracting manufacturers due to their comparatively higher wages for unskilled labour and their often unstable macroeconomies.
The comparative specialisation of financial services in the developed world stems again from the labour force. The developed world possesses a firm advantage in skilled labour, and given that financial services are highly flexible enterprises due to the international nature of financial capital, financial firms are likeliest to headquarter in highly active urban centers with the most advantageous proportion of skilled labour. Thus New York, London, Tokyo, and so forth are well-positioned to take advantage of this trend.
Information technology services are perhaps the most easily diffused and least cost-intensive of the new economy. A country such as India has many natural advantages in providing this service, e.g. a large population versed in English and a depressed wage level for unskilled labour. This has resulted in extraordinary savings for information technology firms (and thus consumers of such technology) as they are able to service many more customers via India than would otherwise be possible. At the same time, it has awarded India a comparative advantage in the area of information technology services via network effects.
Availability of certain forms of physical capital can also be a crucial comparative advantage in certain industries. Depending on their geography, countries may possess farming, ranching, mining, and other advantages over others. Countries near the equator will be better at producing bananas, and countries with mediterranean-like weather conditions will produce better wine. Geography can also be crucial in specialising labour towards trade services. Places like Singapore, Hong Kong, Panama, and Sinai possess natural geographical advantages that encourage growth and investment in trade and all aspects of services associated with trade.
Economic specialisation, whether it be absolute or comparative, is largely responsible for the current international division of labour. Countries, just like individuals, will specialise in whatever discipline or area best suits them based on their endowments and levels of investment in education and physical capital. The most cost-effective solution will tend towards the most profits and the most success, both domestically and internationally.
Saturday, February 14, 2009
Debt servicing in the developing world
The debt servicing problem of developing countries has been a matter of continuing concern since the early 1980s. What are the factors that contributed to this problem? What were the domestic effects of rising external debts? What measures have been undertaken to alleviate this problem? What kinds of policies would you recommend for alleviating the balance of payments difficulties of affected countries?
The developing world was caught up in a global paradigm shift in the late 70s and early 80s when the price of oil spiked due to collusion among OPEC members and international banks were flooded with oil proceeds (the so-called petrodollars) from oil-producing nations. Banks lent the excess petrodollars to developing countries based on over-optimistic expectations of future growth, a sustained high price for oil, and ability and willingness of the recipient nations to pay back. Once the domestic governments realised that their expectations were unlikely to materialise, it was too late in some cases, and balance-of-payments crises ensued, along with high inflation and eventual default on loans. In most cases, these government's myopic profligacy and out-of-control spending was to blame for much of the suffering that followed the end of the petro-fuelled boom. Fiscal restraint, along with sound macroeconomic policies of a countercyclical nature, remain the best preventive against future crises such as this.
The formation and eventual supremacy of OPEC in the world oil markets was largely the beginning of the future balance-of-payments crises of the 1980s. Flooded with foreign currency, host countries deposited their extra proceeds in large multinational banks, who in turn lent several times the amount to developing nations at high interest rates. The governments of developing countries, perpetually strapped for investment, were eager to receive these investments, which were often backed by the international community. Putting aside the issue of corruption or misuse of these now public funds, many times the investments were improperly accounted for in governmental budgets. This was especially true in oil-producing developing nations that were also receiving loans, because budgets were constructed with the expectation of a high oil price built into the equation. Finally, not all governments spent the loan funds efficiently: many were run in a populist fashion that precluded long-term planning and emphasized short-term gain for government agents in office. This continued to be a problem when the crisis unfolded and countries were unable to easily repay: populist governments were likelier to default on loans rather than risk losing political support from their political base, which were often composed of the same people that had benefited from the boom.
As rising external debts mounted during the 1980s, a twofold process took place. Firstly, the global economy slumped and import proceeds fell, constraining the inflow of tax funds. This was combined with a reduction in foreign direct investment and in loans from banks, and it sharply constricted domestic government's purses. Secondly, as national debt matured and was paid with further debt issuance, while at the same time income fell, sovereign debt-income ratios became less and less attractive, to the point where the banks and investors most strapped for cash began refusing new debt issuance and demanded repayment. These two effects combined led to balance-of-payments crises in several countries, e.g. Mexico and Brazil. Deep recessions followed when governments, in an effort to stymie a recession, began to repay debt by simply printing more money without having sufficient foreign reserves to back up the new issues. This worsened the situation further by causing massive inflation as both foreign and domestic consumers lost confidence in these particular currencies. Eventually, the situation became unsustainable and the affected countries suffered deep recessions as debt and imports income dried up, while debt payments due ballooned.
In the years since, contingency plans to prevent similar future crises have been created, and a set of fiscal and monetary guidelines, known as the Washington Consensus, has been promoted among liberal governments to minimize the danger of a repeat. Fiscal restraint and planning is the most obvious of the bunch. To achieve this, the independence of the central bank is encouraged as not just a way to ensure that monetary policy is not politically motivated, but also to project an image of fiscal responsibility to outside investors. Also encouraged is the creation of a countercyclical policy, such as Chile's copper fund. Such policies are tasked with achieving budgetary balance during recessionary periods and with saving and safe investing in boom periods. Finally, to promote openness and transparency, governments are encouraged to disclose the necessary financial and accounting information to international bodies and potential investors.
What if a balance-of-payments crisis is already underway, despite all these safeguards? Assuming an outside "rescue package", such as what Mexico received during the Tequilazo of 1998, is out of the question, there are a few steps domestic governments can take to minimise the pain. One of the first priorities of the government is to ensure the outflow of money is stopped and reversed. The Central Bank will play a crucial role in raising interest rates and properly managing the amount of domestic currency issued to minimize inflation and attract savings. Debt relief or renegotiation with creditors is another top priority in times of balance-of-payments crises. Economies inevitably contract during these crises; therefore, governments have the important job of offering the right stimuli to domestic and foreign businesses not only by maintaining sound macroeconomic policies but also by creating business incentives in the form of lowered or cancelled tariffs, preferred tax regimes, and streamlined legal processes for registering and maintaining businesses.
Time: 1hr 6min
The developing world was caught up in a global paradigm shift in the late 70s and early 80s when the price of oil spiked due to collusion among OPEC members and international banks were flooded with oil proceeds (the so-called petrodollars) from oil-producing nations. Banks lent the excess petrodollars to developing countries based on over-optimistic expectations of future growth, a sustained high price for oil, and ability and willingness of the recipient nations to pay back. Once the domestic governments realised that their expectations were unlikely to materialise, it was too late in some cases, and balance-of-payments crises ensued, along with high inflation and eventual default on loans. In most cases, these government's myopic profligacy and out-of-control spending was to blame for much of the suffering that followed the end of the petro-fuelled boom. Fiscal restraint, along with sound macroeconomic policies of a countercyclical nature, remain the best preventive against future crises such as this.
The formation and eventual supremacy of OPEC in the world oil markets was largely the beginning of the future balance-of-payments crises of the 1980s. Flooded with foreign currency, host countries deposited their extra proceeds in large multinational banks, who in turn lent several times the amount to developing nations at high interest rates. The governments of developing countries, perpetually strapped for investment, were eager to receive these investments, which were often backed by the international community. Putting aside the issue of corruption or misuse of these now public funds, many times the investments were improperly accounted for in governmental budgets. This was especially true in oil-producing developing nations that were also receiving loans, because budgets were constructed with the expectation of a high oil price built into the equation. Finally, not all governments spent the loan funds efficiently: many were run in a populist fashion that precluded long-term planning and emphasized short-term gain for government agents in office. This continued to be a problem when the crisis unfolded and countries were unable to easily repay: populist governments were likelier to default on loans rather than risk losing political support from their political base, which were often composed of the same people that had benefited from the boom.
As rising external debts mounted during the 1980s, a twofold process took place. Firstly, the global economy slumped and import proceeds fell, constraining the inflow of tax funds. This was combined with a reduction in foreign direct investment and in loans from banks, and it sharply constricted domestic government's purses. Secondly, as national debt matured and was paid with further debt issuance, while at the same time income fell, sovereign debt-income ratios became less and less attractive, to the point where the banks and investors most strapped for cash began refusing new debt issuance and demanded repayment. These two effects combined led to balance-of-payments crises in several countries, e.g. Mexico and Brazil. Deep recessions followed when governments, in an effort to stymie a recession, began to repay debt by simply printing more money without having sufficient foreign reserves to back up the new issues. This worsened the situation further by causing massive inflation as both foreign and domestic consumers lost confidence in these particular currencies. Eventually, the situation became unsustainable and the affected countries suffered deep recessions as debt and imports income dried up, while debt payments due ballooned.
In the years since, contingency plans to prevent similar future crises have been created, and a set of fiscal and monetary guidelines, known as the Washington Consensus, has been promoted among liberal governments to minimize the danger of a repeat. Fiscal restraint and planning is the most obvious of the bunch. To achieve this, the independence of the central bank is encouraged as not just a way to ensure that monetary policy is not politically motivated, but also to project an image of fiscal responsibility to outside investors. Also encouraged is the creation of a countercyclical policy, such as Chile's copper fund. Such policies are tasked with achieving budgetary balance during recessionary periods and with saving and safe investing in boom periods. Finally, to promote openness and transparency, governments are encouraged to disclose the necessary financial and accounting information to international bodies and potential investors.
What if a balance-of-payments crisis is already underway, despite all these safeguards? Assuming an outside "rescue package", such as what Mexico received during the Tequilazo of 1998, is out of the question, there are a few steps domestic governments can take to minimise the pain. One of the first priorities of the government is to ensure the outflow of money is stopped and reversed. The Central Bank will play a crucial role in raising interest rates and properly managing the amount of domestic currency issued to minimize inflation and attract savings. Debt relief or renegotiation with creditors is another top priority in times of balance-of-payments crises. Economies inevitably contract during these crises; therefore, governments have the important job of offering the right stimuli to domestic and foreign businesses not only by maintaining sound macroeconomic policies but also by creating business incentives in the form of lowered or cancelled tariffs, preferred tax regimes, and streamlined legal processes for registering and maintaining businesses.
Time: 1hr 6min
Industrialization and redistribution
There have been serious disagreements in the literature on economic development as to the strategies that developing countries should follow to foster the development process. Two unsettled issues refer to: (1) the advantages of stressing agriculture or of fostering industrialization; (2) policies that take as given the current income distribution and depend on a trickle-down of the fruits of economic growth to the poorer segments of the population, as against a a strategy heavily oriented towards meeting basic needs. Discuss in detail these two controversies and how the current world economic situation affects them.
Democratic governments in developing nations have their preferences for economic development paths set in often contradictory or contrarian ways, for while it is possible to pursue many development policies at once, ideology--which is an important factor in politics in most democratic governments--may get in the way of practicality. So it is with agricultural versus industrial development and with trickle-down economics versus redistributive economics. The debate of agriculturalists versus industrialists may vary according to domestic contexts, but usually agriculturalist arguments assume a degree of autarkic control over the domestic food supply is a necessary good, and attach great importance to the sustainability of farmer livelihoods. Industrialists, on the other hand, stress the need for technological innovation and greater connection to the mercantile world in order to achieve prosperity, and may argue that control over the domestic food supply is good, but not necessary. Similarly, the clash over proper usage of redistributive policies may differ by region. Those embracing redistributive arguments tend to express alarm at widening income gaps and stress the need for properly funded social services such as schools, hospitals, and police departments. Meanwhile, the trickle-down camp will argue that redistribution hampers entrepreneurship and innovation, causes domestic talent to flee to societies where they will be better able to prosper, and discourages domestic and foreign investment. Naturally, all arguments are affected by current events and the relevant economic situations of the time.
Agricultural development policies have varied proponents, but most put forth a certain set of similar arguments: food security, the preservation of farmer societies, and the concomitant stability that this implies. Arguments for food security stem from varied concerns about the wisdom of the importation of food. Proponents of food security mostly tend to fear that a loss of control over the nation's food supply may endanger national survival if the producer nation refuses to sell, or is unable to sell food to the consumer nation. These fears are not unfounded, as the recent spike in food prices around the world had many poorer countries scrambling to outbid each other for supplies. In times such as these, food security arguments become much more convincing. However, some nations that import all or most of their food, such as Singapore or Malta, having no choice but to import, outgrew these arguments early on.
The preservation of farmer's livelihoods is another relevant topic for agriculturalist arguments. Apart from the cultural and anthropological gains that preservation implies, there is the politically sensitive issue of the preservation of stability, which is what governments are usually most concerned with. Typically developing nations will have large farmer constituencies, which though disenfranchised to some degree, are able to wield enormous amounts of political influence if and when they feel the government has betrayed them or somehow sold them short. The emphasis on preserving farmer societies stems from the need of governments to maintain a status quo where this potentially explosive constituency will stay in check. There have been instances of governments being toppled when they have failed to satisfy or have neglected this constituency, e.g. Ecuador in the late 90s and early 2000s.
The industrialist camp often attacks agriculturalists with efficiency arguments and points to the most successful development stories, like Korea and Taiwan, for support of industrial policies. The benefits of specialisation are touted as answers to poverty and underdevelopment. Technological innovation and globalisation are seen as the way towards greater economic prosperity, while the need for food security is downplayed. Indeed, the most successful stories in economic development show that industrialisation can peacefully and stably deliver prosperity and mitigate poverty on a national level. To achieve such prosperity, however, there are many governance and macroeconomic prerequisites domestic governments must fulfil before embarking on successful industrialisation campaigns: government must be transparent, open, and democratic; it must successfully prosecute corruption and reward efficiency; and it must promote investment and stability. Monetary and fiscal policy must move in lockstep to fight inflation and minimise waste.
In this time of globalisation and global recession, both arguments can profit from the situation. Agriculturalists may point to the unfolding fiscal crises in the least liquid countries and argue that a crisis of food security could be averted if production was local rather than imported. Industrialists may argue that attaining specialisation in the right products lends any country a competitive edge that will fend off recession and keep imports flowing.
The arguments over the proper use of redistribution have a long history and have fierce ideological and philosophical backings; however, the basic tenets of the more liberal and more conservative approaches may be briefly analysed. While liberal redistributionists argue of the necessity of providing governmental social services, conservatives argue higher taxation discourage entrepreneurship and thus hamper economic innovation and prosperity; the liberal perspective emphasizes social equality while the conservative stresses efficiency.
The conservative approach bases itself on the economic assumption of self-interest and the incentives that align to foster entrepreneurship and innovation. Entrepreneurs are individuals that invent new concepts or products that they disseminate or sell at a profit, or that seek opportunities to exploit new markets via price arbitrage. The economic argument against greater redistribution is based on opposition to the higher taxes that redistribution presupposes. Higher taxation deprives those who do not derive their sustenance from the government--a category that includes entrepreneurs--from a greater part of the fruits of their labour. Once a certain critical point is passed, entrepreneurs have no self-interested incentive left to pursue their ideas or exploit their knowledge of arbitrage opportunities. The society as a whole loses out on the efficiencies that would have otherwise been created.
The liberal approach, on the other hand, argues that society as a whole benefits most from a healthy, educated, lawful populace, and that a sustainable economic model must take into account the well-being of all citizens over the self-interest of its wealthiest, as only then will maximum efficiency--labour and otherwise--be achieved.
The current economic crisis has seen divergent arguments for both of these viewpoints. Liberals may argue that government spending on services and human resources are the best way to emerge successfully from recession, citing both humanitarian and countercyclical Keynesian arguments. At the same time, the conservative model sees increased spending as wasteful for two reasons: firstly, most government spending in times of recession is politically geared towards short-term consumption rather than long-term investment; and secondly, because most of this spending is financed with issuance of debt, which must be eventually repaid and is therefore merely pushing the pain of the current recession into the future, when taxes will inevitably be raised to pay both principal and interest.
Although invariably governments around the world must respond to the current economic crisis, it will be of much interest down the road to study and comprehend the reasons behind the failure or success of particular cases.
Democratic governments in developing nations have their preferences for economic development paths set in often contradictory or contrarian ways, for while it is possible to pursue many development policies at once, ideology--which is an important factor in politics in most democratic governments--may get in the way of practicality. So it is with agricultural versus industrial development and with trickle-down economics versus redistributive economics. The debate of agriculturalists versus industrialists may vary according to domestic contexts, but usually agriculturalist arguments assume a degree of autarkic control over the domestic food supply is a necessary good, and attach great importance to the sustainability of farmer livelihoods. Industrialists, on the other hand, stress the need for technological innovation and greater connection to the mercantile world in order to achieve prosperity, and may argue that control over the domestic food supply is good, but not necessary. Similarly, the clash over proper usage of redistributive policies may differ by region. Those embracing redistributive arguments tend to express alarm at widening income gaps and stress the need for properly funded social services such as schools, hospitals, and police departments. Meanwhile, the trickle-down camp will argue that redistribution hampers entrepreneurship and innovation, causes domestic talent to flee to societies where they will be better able to prosper, and discourages domestic and foreign investment. Naturally, all arguments are affected by current events and the relevant economic situations of the time.
Agricultural development policies have varied proponents, but most put forth a certain set of similar arguments: food security, the preservation of farmer societies, and the concomitant stability that this implies. Arguments for food security stem from varied concerns about the wisdom of the importation of food. Proponents of food security mostly tend to fear that a loss of control over the nation's food supply may endanger national survival if the producer nation refuses to sell, or is unable to sell food to the consumer nation. These fears are not unfounded, as the recent spike in food prices around the world had many poorer countries scrambling to outbid each other for supplies. In times such as these, food security arguments become much more convincing. However, some nations that import all or most of their food, such as Singapore or Malta, having no choice but to import, outgrew these arguments early on.
The preservation of farmer's livelihoods is another relevant topic for agriculturalist arguments. Apart from the cultural and anthropological gains that preservation implies, there is the politically sensitive issue of the preservation of stability, which is what governments are usually most concerned with. Typically developing nations will have large farmer constituencies, which though disenfranchised to some degree, are able to wield enormous amounts of political influence if and when they feel the government has betrayed them or somehow sold them short. The emphasis on preserving farmer societies stems from the need of governments to maintain a status quo where this potentially explosive constituency will stay in check. There have been instances of governments being toppled when they have failed to satisfy or have neglected this constituency, e.g. Ecuador in the late 90s and early 2000s.
The industrialist camp often attacks agriculturalists with efficiency arguments and points to the most successful development stories, like Korea and Taiwan, for support of industrial policies. The benefits of specialisation are touted as answers to poverty and underdevelopment. Technological innovation and globalisation are seen as the way towards greater economic prosperity, while the need for food security is downplayed. Indeed, the most successful stories in economic development show that industrialisation can peacefully and stably deliver prosperity and mitigate poverty on a national level. To achieve such prosperity, however, there are many governance and macroeconomic prerequisites domestic governments must fulfil before embarking on successful industrialisation campaigns: government must be transparent, open, and democratic; it must successfully prosecute corruption and reward efficiency; and it must promote investment and stability. Monetary and fiscal policy must move in lockstep to fight inflation and minimise waste.
In this time of globalisation and global recession, both arguments can profit from the situation. Agriculturalists may point to the unfolding fiscal crises in the least liquid countries and argue that a crisis of food security could be averted if production was local rather than imported. Industrialists may argue that attaining specialisation in the right products lends any country a competitive edge that will fend off recession and keep imports flowing.
The arguments over the proper use of redistribution have a long history and have fierce ideological and philosophical backings; however, the basic tenets of the more liberal and more conservative approaches may be briefly analysed. While liberal redistributionists argue of the necessity of providing governmental social services, conservatives argue higher taxation discourage entrepreneurship and thus hamper economic innovation and prosperity; the liberal perspective emphasizes social equality while the conservative stresses efficiency.
The conservative approach bases itself on the economic assumption of self-interest and the incentives that align to foster entrepreneurship and innovation. Entrepreneurs are individuals that invent new concepts or products that they disseminate or sell at a profit, or that seek opportunities to exploit new markets via price arbitrage. The economic argument against greater redistribution is based on opposition to the higher taxes that redistribution presupposes. Higher taxation deprives those who do not derive their sustenance from the government--a category that includes entrepreneurs--from a greater part of the fruits of their labour. Once a certain critical point is passed, entrepreneurs have no self-interested incentive left to pursue their ideas or exploit their knowledge of arbitrage opportunities. The society as a whole loses out on the efficiencies that would have otherwise been created.
The liberal approach, on the other hand, argues that society as a whole benefits most from a healthy, educated, lawful populace, and that a sustainable economic model must take into account the well-being of all citizens over the self-interest of its wealthiest, as only then will maximum efficiency--labour and otherwise--be achieved.
The current economic crisis has seen divergent arguments for both of these viewpoints. Liberals may argue that government spending on services and human resources are the best way to emerge successfully from recession, citing both humanitarian and countercyclical Keynesian arguments. At the same time, the conservative model sees increased spending as wasteful for two reasons: firstly, most government spending in times of recession is politically geared towards short-term consumption rather than long-term investment; and secondly, because most of this spending is financed with issuance of debt, which must be eventually repaid and is therefore merely pushing the pain of the current recession into the future, when taxes will inevitably be raised to pay both principal and interest.
Although invariably governments around the world must respond to the current economic crisis, it will be of much interest down the road to study and comprehend the reasons behind the failure or success of particular cases.
Thursday, February 12, 2009
First Blog
This is a test for a blog post. The information in this post and views expressed herein do not necessarily represent anyone’s actual real world views and should not be construed as the views, offers or acceptances of anyone, at any point, at any time. The information herein is intended only for the person or the entity to which it is addressed and may contain confidential and/or privileged material. If you are reading this by mistake please notify your mom and delete this blog post from your memory. This blog post is licensed under a Creative Commons license. However, any use, review, reliance or dissemination of this post in whole or in part is strictly prohibited. Please note that blog posts are susceptible to change.
Having said all that: Hello, World!
That is all.
Having said all that: Hello, World!
That is all.
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